(TSLA) Archives

The Market Outlook for the Week Ahead, or Parachuting Without a Parachute

It has been the worst New Year stock market opening in history.

After a two-day fake-out to the upside, stocks rolled over like the Bismarck and never looked up. NASDAQ did its best interpretation of flunking parachute school without a parachute, posting the worst month since 2008.

Markets can’t hold on to any rally longer than nanoseconds, and the last hour of the day has turned into one from hell.

What is even more confusing is that stocks are now trading like commodities, with massive one-way moves, while commodities, like oil (USO), copper( FCX), and iron ore (VALE) have resumed a steady grind up.

We had a lovefest going on here at Incline Village, Nevada for Technology and Bitcoin researcher Arthur Henry has been staying with me for the week to plot market strategy.

Once the market showed its hand, I sold short Microsoft (MSFT), which elicited torrents of complaints from readers. Then Arthur sold short Netflix (NFLX), inviting refund demands. Then I sold short Apple (AAPL), prompting accusations of high treason. Then Arthur sold short Teledoc (TDOC). There wasn’t a lot of talking, but frenetic writing and emailing instead.

Followers cried all the way to the bank.

In a mere two weeks, the price earnings multiple for the S&P 500 plunged from 22X to 20X. A lot of traders were only buying stock because they were going up. Take out the “up” and Houston we have a problem.

The entire streaming industry seems to have gone up in smoke and ex-growth practically overnight. Netflix (NFLX) delivered a gob smacking 29.5% swan dive in the wake of disappointing subscriber growth forecasts. Walt Disney (DIS), which ate the Netflix lunch, was dragged down 10% through guilt by association.

It is often said that the stock market has discounted 12 of the last six recessions. It is currently pricing in one of those non-recessions. What we are seeing is a sudden growth scare of the first order.

Despite last week’s carnage, stocks are still the most attractive asset class in the world, offering a potential 10% return in 2022. The problem is that they may make that 10% profit starting from 10% lower than here.

Despite all the red ink, big tech stocks are still on track to see a 30% earnings growth this year, and they account for a hefty 28% of the market.

Let’s look at Apple’s past declines for guidance on this meltdown.

Steve Jobs’ creation gave back 60% in the 2008 Great Recession, 34% during the 2015 growth scare, 48% during the great 2018 Christmas collapse, and 28% in the 2020 pandemic crash. So, the good news is that you won’t get killed by this selloff, you’ll just lose an arm and a leg. But they’ll grow back.

Remember, it’s always darkest just before it goes completely black. This correction is survivable, although it may not seem so at the moment.

It does vindicate my 2022 view that the first half will be about survival and that big money can be had in the second half.

So far, so good.

The Market is De-Grossing Big Time. That means cutting total market exposure and selling everything, regardless of stock or sector. The market is discounting a recession and bear market that isn’t going to happen, which occurs often. When it ends in a few weeks, interest rate sensitives, especially the banks, will bounce back hard, but tech won’t. Buy (JPM), (WFC), and (BAC) on bigger dips.

The Bond Collapse Goes Global, with German 10-year bunds going positive for the first time in three years, up 40 basis points in a month. Yes, inflation is finally hitting the Fatherland, home of post-WWI billion percent inflation. Eurozone inflation just topped 5%, well above its 2% target. British inflation hit a 30-year high. The move has lit a fire under all Euro currencies. Methinks the down move in (TLT) has more to go.

Fed to Raise Rates Eight Times, says Marathon Asset Management. That’s what will be needed to curb the current runaway inflation now at 7.0% and still rising. Personally, I think it will be 12 quarter-point increments to peak out at a 3 ¼% overnight rate. Any more and Powell might bring on a recession.

NASDAQ is Officially in Correction, down 10%, in the wake of poor performance this month. It’s the fourth one since the pandemic began two years ago. Tesla (TSLA), Amazon (AMZN), and NVIDIA (NVDA) have been leading the swan dive, all felled by rapidly rising interest rates. This could go on for months.

Weekly Jobless Claims Hit 286,000, a four-month high, as omicron sends workers fleeing home.

Goldman Sachs (GS) Gets Crushed, down 8%, on disappointing earnings. Tough market conditions are fading trading volumes while 2021 bonuses were through the roof. The move is particularly harsh in that buyers were flooding in right at support at the 200-day moving average.

China GDP (FXI) Grows 8.1% YOY but is rapidly slowing now, thanks to Omicron. China was first in and first out with the pandemic but is getting hit much harder in this round. That has prompted new mass lockdowns which will make out own supply chain problems worse for longer. In Chinese, “lockdown” means they weld your door shut, unlike here. Harsh, but it works.

Oil (USO) Hits Seven-Year High, as inventories hit a 21-year low. No new capital is entering the industry, crimping supplies as old fields play out. The threat of a Russian invasion of the Ukraine is prompting advance stockpiling. Russia is the world’s second-largest oil exporter.

Existing Homes Sales Hit a 15-Year High, at 6.12 million, the best since 2006. December fell 4.6%. Extreme inventory shortage is the issue, with only 910,000 homes for sale at the end of the year, an incredibly low 1.8-month supply. You can’t find anything on the market now, to buy or rent. The median price of a home sold in December was $358,000, a 15.8% gain YOY.

Bitcoin (BITO) Crashes, decisively breaking key support at $40,000. Non-yielding assets of every description are getting wiped. Bail on all crypto options plays asap.

My Ten-Year View

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!

With the pandemic-driven meltdown on Friday, my January month-to-date performance bounced back hard to 5.05%. My 2022 year-to-date performance also ended at 5.05%. The Dow Average is down -6.12% so far in 2022.

Once stocks went into free fall, I piled on the short positions as fast as I could write the trade alerts, including in Microsoft (MSFT), Apple (AAPL), and a double short in the S&P 500 (SPY). I also increased my shorts in the bond market (TLT) to a triple position. When prices became the most extreme, when the Volatility Index (VIX) hit $30, I bought both (SPY) and (TLT).

If everything goes our way, we should be up 14.26% by the February 18 options expiration.

That brings my 12-year total return to 517.61%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 42.82% easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 71 million and rising quickly and deaths topping 866,000, which you can find here.

On Monday, January 24 at 6:45 AM, The Market Composite Flash PMI for January is out. Haliburton (HAL) reports.

On Tuesday, January 25 at 6:00 AM, the S&P Case Shiller National Home Price Index for November is released. American Express (AXP) reports.

On Wednesday, January 26 at 7:00 AM, the New Home Sales for December are published. At 11:00 AM The Federal Reserve interest rate decision is announced. Tesla (TSLA), Boeing (BA), and Freeport McMoRan (FCX) report.

On Thursday, January 27 at 8:30 AM the Weekly Jobless Claims are disclosed. We also get the first look at US Q4 GDP. Alaska Air (ALK) and US Steel (X) report.

On Friday, January 28 at 5:30 AM EST US Personal Income & Spending is printed. Caterpillar (CAT) reports. At 2:00 PM, the Baker Hughes Oil Rig Count is out.

As for me, when I drove up to visit my pharmacist in Incline Village, Nevada, I warned him in advance that I had a question he never heard before: How good is 80-year-old morphine?

He stood back and eyed me suspiciously. Then I explained in detail.

Two years ago, I led an expedition to the South Pacific Solomon Island of Guadalcanal for the US Marine Corps Historical Division (click here for the link). My mission was to recover physical remains and dog tags from the missing-in-action there from the epic 1942 battle.

Between 1942 and 1944, nearly four hundred Marines vanished in the jungles, seas, and skies of Guadalcanal. They were the victims of enemy ambushes and friendly fire, hard fighting, malaria, dysentery, and poor planning.

They were buried in field graves, in cemeteries as unknowns, if not at all left out in the open where they fell. They were classified as “missing,” as “not recovered,” as “presumed dead.”

I managed to accomplish this by hiring an army of kids who knew where the most productive battlefields were, offering a reward of $10 a dog tag, a king's ransom in one of the poorest countries in the world. I recovered about 30 rusted, barely legible oval steel tags.

They also brought me unexploded Japanese hand grenades (please don’t drop), live mortar shells, lots of US 50 caliber and Japanese 7.7 mm Arisaka ammo, and the odd human jawbone, nationality undetermined.

I also chased down a lot of rumors.

There was said to be a fully intact Japanese zero fighter in flying condition hidden in a container at the port for sale to the highest bidder. No luck there.

There was also a just discovered intact B-17 Flying Fortress bomber that crash-landed on a mountain peak with a crew of 11. But that required a four-hour mosquito-infested jungle climb and I figured it wasn’t worth the malaria.

Then, one kid said he knows the location of a Japanese hospital. He led me down a steep, crumbling coral ravine, up a canyon and into a dark cave. And there it was, a Japanese field hospital untouched since the day it was abandoned in 1943.

The skeletons of Japanese soldiers in decayed but full uniform laid in cots where they died. There was a pile of skeletons in the back of the cave. Rusted bottles of Japanese drugs were strewn about, and yellowed glass sachets of morphine were scattered everywhere. I slowly backed out, fearing a cave-in.

It was creepy.

I sent my finds to the Marine Corps at Quantico, Virginia, who traced and returned them to the families. Often the survivors were the children or even grandchildren of the MIAs. What came back were stories of pain and loss that had finally reached closure after eight decades.

Wandering about the island, I often ran into Japanese groups with the same goals as mine. My Japanese is still fluent enough to carry on a decent friendly conversation with the grandchildren of their veterans. It turned out I knew far more about their loved ones than they. After all, it was our side that wrote the history. They were very grateful.

How many MIAs were they looking for? 30,000! Every year, they found hundreds of skeletons, cremated in a ceremony, one of which I was invited to. The ashes were returned to giant bronze urns at Yasakuni Ginja in Tokyo, the final resting place of hundreds of thousands of their own.

My pharmacist friend thought the morphine I discovered had lost half of its potency. Would he take it himself? No way!

As for me, I was a lucky one. My dad made it back from Guadalcanal, although the malaria and post-traumatic stress bothered him for years. And you never wanted to get in a fight with him….ever.

I can work here and make money in the stock market all day long. But my efforts on Guadalcanal were infinitely more rewarding. I’ll be going back as soon as the pandemic ends, now that I know where to look.

Stay Healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

True MIAs, the Ultimate Sacrifice

My Collection of Dog Tags and Morphine

My Army of Scavengers

Dad on Guadalcanal (lower right)

January 21, 2022

Tech Letter

Mad Hedge Technology Letter
January 21, 2022
Fiat Lux

Featured Trade:

(FIVE TECH STOCKS TO LAP UP AT THE BOTTOM)
(MSFT), (TSLA), (GOOGL), (AAPL), (AMZN)

Five Tech Stocks to Lap Up at the Bottom

Tech Letter

Tech has led the way to the downside as the macro picture sours in the short term.

Valuations have come down from the nosebleed levels and now is the time to pick and choose where to allocate capital for the next leg up in tech.

Avoiding growth tech is something that should be stapled to your bedpost, loss-making companies won’t be able to compete with more established revenue models.

You don’t want to catch a falling knife, but at the same time, diligently prepare yourself to buy the best discounts of the year.

Here are the names of five of the best stocks to slip into your portfolio in no particular order when we find a bottom.

Remember, tech ALWAYS comes back.

Apple

Steve Job’s creation is weathering the gale-force storm quite well. Apple has been on a tear reconfirming its smooth pivot to a software service tilted tech company. The timing is perfect as China has enhanced its smartphone technology by leaps and bounds.

Even though China cannot produce the top-notch quality phones that Apple can, they have caught up to the point local Chinese are reasonably content with its functionality.

That hasn’t stopped Apple from vigorously growing revenue in greater China 20% YOY during a feverishly testy political climate that has their supply chain in Beijing’s crosshairs.

The pivot is picking up steam and Apple’s revenue will morph into a software company with software and services eventually contributing 25% to total revenue.

They aren’t just an iPhone company anymore. Apple has led the charge with stock buybacks and will gobble up a total of $200 billion in shares by the end of 2021. Get into this stock while you can, as entry points are few and far between.

Oh, and their 5G phone is selling like hotcakes. Some one billion need to be replaced to bring consumers into the new high speed 5G world.

Amazon (AMZN)

This is the best company in America, hands down, and commands 5% of total American retail sales or 49% of American e-commerce sales. The pandemic has vastly accelerated the growth of their business.

It became the second company to eclipse a market capitalization of over $1 trillion. Its Amazon Web Services (AWS) cloud business pioneered the cloud industry and had an almost 10-year head start to craft it into its cash cow. Amazon has branched off into many other businesses since then, oozing innovation, and is a one-stop wrecking ball.

The newest direction is the smart home where they seek to place every single smart product around the Amazon Echo, the smart speaker sitting nicely inside your house. A smart doorbell was the first step along with recently investing in a pre-fab house start-up aimed at building smart homes.

Microsoft (MSFT)

The optics in 2021 look utterly different from when Bill Gates was roaming around the corridors in the Redmond, Washington headquarter -- and that is a good thing.

Current CEO Satya Nadella has turned this former legacy company into the 2^nd largest cloud competitor to Amazon and then some.

Microsoft Azure is rapidly catching up to Amazon in the cloud space because of the Amazon effect working in reverse. Companies don’t want to store proprietary data to Amazon’s server farm when they could possibly destroy them down the road. Microsoft is mainly a software company and gained the trust of many big companies, especially retailers.

Microsoft is also on the vanguard of the gaming industry and deals like the $86 billion purchase of Activision (ATVI) mean that it will be difficult for another company to loosen MSFTs stranglehold at the top of the gaming ladder.

Alphabet (GOOGL)

Alphabet and Facebook boast a strong duopoly of ad technology. Alphabet generated 80% of its revenue from Google's advertising services in 2020. Google's non-advertising businesses (including subscriptions and hardware) accounted for 12%, while another 7% came from Google Cloud.

Alphabet's total revenue rose 13% in 2020, even as the pandemic throttled the growth of Google's advertising business in the first half of the year. The growth of Google Cloud throughout the year also cushioned that blow.

Google's advertising business recovered in the second half of the year, and Alphabet's operating margin expanded from 21% in 2019 to 23% in 2020. Its diluted earnings per share (EPS) also grew 19%.

In the first nine months of 2021, Alphabet's revenue rose 45% year over year as Google's advertising and cloud business grew in tandem.

Its array of different businesses like LinkedIn, YouTube, and Google Maps means this revenue pipeline is as fertile as can be.

Google’s robust balance sheet will protect itself from any downtrend in business that they might ever suffer.

Tesla (TSLA)

The influential EV leader has really surged ahead of the competition during the pandemic.

Demand for its product is off the charts as they delivered 184,800 Model 3 and Model Y cars in the first quarter, beating expectations and setting a record for Tesla.

However, the company also said it produced none of its higher-end Model S sedans or Model X SUVs for the period ending March. It delivered 2,020 older Model S sedans and Model X SUVs from inventory.

Supply chain issues are likely to remain a challenge for Tesla this year as many EV makers are having a hard time sourcing semiconductor chips.

Tesla is now aiming to produce 2,000 Model S and X vehicles per week later this year.

The company said Monday it expects more than 50% vehicle delivery growth in 2021 overall, which implies minimum deliveries of around 750,000 vehicles this year.

This stock is a must-buy when tech reverses.

January 10, 2022

Tech Letter

Mad Hedge Technology Letter
January 10, 2022
Fiat Lux

Featured Trade:

(THE EV DARKHORSE)
(LCID), (TSLA), (NKLA)

The EV Darkhorse

Tech Letter

2022 could be the year that Lucid Motors (LCID) put a dent in the universe as one of the many EV upstarts hoping to eventually challenge Tesla (TSLA) one day on top of their lofty perch.

Realistically, many EV companies never get to the point of delivering cars, like fraudulent company Nikola (NKLA), but Lucid has started to roll out new cars to US customers.

Things move fast in the EV industry and Lucid has announced they are planning to start shipping cars in Europe sometime this year.

The stock exploded to the upside on the announcement.

Conceptually, the idea that Lucid is expanding fast, creating and looking to take advantage of the total addressable market in Europe only signals to investors they are doing all the right things in all the right places.

I believe there is loads of momentum in EV cars today, and their trajectory this year is impressive as we are seeing it in our news feeds.

I am not just talking about Tesla, but the mainstreaming of the product will help the next in line to build something competitive to Tesla and Tesla blazing an early trail has helped really legitimize the industry.

Sure, at the micro level, there are still teething pains with EVs, like waiting an hour for your Tesla X to charge at a supercharger.

The science behind it still needs to catch up to the point where someone can just get behind a wheel and drive coast to coast without crunching the logistics designed for the trip.

Germany will probably be the most important European market for Lucid, being a car-first society while the citizens harness high purchasing power.

Lucid also wants an expansive taste of Europe by expanding all over and that means places like Sweden and Switzerland.

The company is currently building its only model, the Air sedan, at its Arizona plant, yet the volume of cars is kept from the public view.

The firm pumped out a few hundred cars in 2021 but wants to ramp up to 20,000 by the end of 2022.

The vehicles it has delivered so far don’t have a full variety of active safety aids online, but they will be enabled via an over-the-air updated by the end of January.

Just like Tesla, Lucid will probably try to push its direct sales model in Europe as well. The manufacturer has already announced plans to set up nine Lucid Studios in the United States and major European cities are in the mix as well.

Lucid CEO Peter Rawlinson has already stated that the company also plans to roll out in the Middle East in 2022, with China following in 2023 so there’s a lot in the pipeline here, but it could be biting off more than they can chew.

If the “EV trade” catches fire this year which is certainly in the realm of possibilities, I see the stock doubling from $42 to over $80 per share.

Let’s not forget that the used car market is so hot that it costs almost as much as buying a new car.

Energy is higher across the board, so why not slap on some solar panels on the roof and drive an EV for free instead of indulging in expensive fossil fuels?

The Saudi Arabia's Public Investment Fund has previously stated that they will not be selling any of their Lucid Motors shares until beyond 2030, which is why they are planning to sell these EVs in the Middle East.

When the PIF gave Lucid Motors an investment of $1 billion in 2018, that deal was contingent on Lucid Motors building a plant in Saudi Arabia.

Lucid is projecting themselves to be a leader in solar, and by 2026 they estimate that they will make over $22 billion a year from their Renewable Energy division.

This EV company has a solid foundation, and if the cars stack up nicely against the Teslas of the world, then they really have the potential to uplift the stock price in 2022.

Reviews of its car have been generally good, with highlights like world-class efficiency, miraculous packaging, and amazing performance and comfort.

This could be the dark horse of EV’s in 2022 and I am looking out for a splashier Lucid EV model in the years ahead. I am bullish on Lucid Motors.

January 10, 2022

Diary, Newsletter, Summary

Global Market Comments
January 10, 2022
Fiat Lux

Featured Trades:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHY I FEEL SO MUCH BETTER)
(TSLA), (AAPL)

The Market Outlook for the Week Ahead, or Why I Feel So Much Better

Diary, Newsletter

A month ago, I was wringing my hands, pacing the floor, and tossing and turning at night. I had no idea what the stock market was going to do in 2022.

Now, I feel so much better. For while getting snowed in at Lake Tahoe for two weeks, I dove into the deep research. Slowly, the fog cleared, the clouds lifted, and everything became crystal clear.

The markets vindicating my views with a sledgehammer, I feel so much better.

A year behind schedule, the great bond market crash has begun in earnest, taking ten-year US Treasury yields up an eye-popping 45 basis points in a month. Financial stocks have caught on fire. Technology stocks are getting mercilessly dumped. Any non-yielding security, be it gold, silver, Bitcoin, or small-cap tech stocks, have been taken to the woodshed.

So what happens next? More of the same. The out-of-tech into financials trade could continue for another three to five months.

Then the Fed’s cycle of rising interest rates will take a break by summer. Financials will be super-heated and at all-time highs. Technology stocks will be below their 200-day moving averages. So you reverse the trade. Tech will lead in the second half.

All I can say is that I am really glad that I am not the Chairman of the Federal Reserve right now. If Omicron convinces Jay Powell to delay interest rate hikes, he risks inflation getting out of control. If he continues to accelerate the rate high schedule he could kill the recovery.

And here’s the 800-pound gorilla in the room that no one is talking about. What is the biggest threat to the US and the global economy? No, it’s not Covid. It isn’t inflation. It’s not even a tempestuous midterm election, which has already begun.

It’s a stock market crash. Remember that stock market crash that took the Dow Average down 40%, as we saw in March-April 2020? That is first and foremost what is in Powell’s mind.

So if we breach the 10% correction that now appears underway, Jay may quietly pull back on the rate hike throttle. The folder making the argument will be quietly lost behind the radiator at 20^th street and Constitution Avenue in Washington DC, the home of the Federal Reserve.

The Fed Minutes were a bombshell, indicating a serious acceleration of interest rate hikes is in the cards this year. The Fed may flip to a net seller of Treasury bonds by the fall. Bonds sold off hard and may break to new 2-year lows. Take profits on all short-dated bond plays, with the (TLT) down $14.00 in a month. Technology got crushed, posting the worst day in 11 months. Sell all tech option plays. You can buy them back cheaper later. But keep big tech stocks. They can only go don so much with 30% earnings growth this year.

NASDAQ Stocks down 50% hits record from one-year highs. It’s a Dotcom bust echo. Traders are selling first and doing the research later. That means half of all tech stocks are in bear markets. Soaring interest rates aren’t helping.

Nonfarm Payroll Report disappoints at 199,000 in December. But the Headline Unemployment Rate plunged from 4.2% to 3.9%, approaching a new century low. The U-6 “discouraged worker” rate dropped to 7.3%. Leisure & Hospitality led at 53,000, followed by Professional & Business Service at 43,000, and Manufacturing at 26,000. The government lost 12,000 jobs. Some 650,000 people gain jobs, with self-employment surging. Once again, the data is wildly contradictory as a post-pandemic America remakes itself. Bonds and tech were crushed, financials soared.

Apartment Occupancy hits all-time high, as growing numbers are priced out of home ownership. As a result, rental rates are now rising faster than home prices. Occupancy is now at 97.5%.

Tesla delivers a record 308,600 EVs in Q4, blasting all expectations, taking them nearly to Elon Musk’s 2021 target of one million. They managed to beat all supply chain challenges. In a brilliant move, when other car makers cancelled chip orders in 2020, Tesla bought them all up. Tesla remains far and away the mass production leader in EVs, and I am maintaining my $10,000 target. In addition, Musk is done selling the stock for another year.

US Dollar clocks best year in six, up 7%, powered by rising interest rate fears that never came. The Turkish lira was the worst-performing, down 44%, thanks to government mismanagement there.

Apple tops $3 trillion market cap, the shares rising above $183, well on the way to my $250 target for 2022. The stock is getting extended short term to raise cash to buy on the next selloff. I am hanging on to my own long term holding with a split-adjusted cost basis of 25 cents.

US Home Prices soar 18% in October according to S&P Case Shiller. Phoenix (32.3%), Tampa (28.1%), and Miami (25.7%) led. 30-year fixed rate mortgages at 3.05% were a huge help.

Bitcoin gets crushed, approaching a one-year low at $40,000, and will continue to do so. Not interest-bearing instruments like gold and crypto don’t do well during rapidly rising interest rates. In the meantime, some $3.2 billion in crypto was stolen in 2021, a rise of 516% from the previous year, mostly from those who don’t know how to protect their Defi platforms with no central exchange authority.

My Ten-Year View

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!

With the pandemic-driven meltdown on Friday, my December month-to-date performance bounced back hard to 11.26%. My 2021 final performance ended at 90.02%. The Dow Average was up 18.4% in 2021.

I have a 100% cash position, waiting for the ideal entry point to enter the market. With the 500-point crash today, suddenly the requests for new trade alerts have faded.

That brings my 12-year total return to 512.56%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 42.41% easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 60 million and rising quickly and deaths going up t0 840,000, which you can find here at https://coronavirus.jhu.edu.

On Monday, January 10 at 8:00 AM, Consumer Inflation Expectations are announced.

On Tuesday, January 11 at 10:00 AM, Jay Powell testifies in front of Congress.

On Wednesday, January 12 at 8:30 AM, the Core Inflation Rate for December is released.

On Thursday, January 13 at 8:30 AM the Weekly Jobless Claims are disclosed.

On Friday, January 14 at 8:30 AM, the Retail Sales for December are out.

As for me, as this pandemic winds down, I am reminded of a previous one in which I played a role in ending.

After a 30-year effort, the World Health Organization was on the verge of wiping out smallpox, a scourge that had been ravaging the human race since its beginning. I have seen Egyptian mummies at the Museum of Cairo that showed the scarring that is the telltale evidence of smallpox, which is fatal in 50% of cases.

By the early 1970s, the dread disease was almost gone but still remained in some of the most remote parts of the world. So, they offered a reward to anyone who could find live cases.

To join the American Bicentennial Mt. Everest Expedition in 1976, I took a bus to the eastern edge of Katmandu and started walking. That was the farthest roads went in those days. It was only 150 miles to basecamp and a climb of 14,000 feet.

Some 100 miles in I was hiking through a remote village, which was a page out of the 14^th century, back when families threw buckets of sewage into the street. The trail was lined with mud-brick two-story homes with wood shingle roofs, with the second story overhanging the first.

As I entered the town, every child ran to their windows to wave, as visitors were so rare. Every smiling face was covered with healing but still bleeding smallpox sores. I was immune, since I received my childhood vaccination, but I kept walking.

Two months later, I returned to Katmandu and wrote to the WHO headquarters in Geneva about the location of the outbreak. A year later I received a letter of thanks at my California address and a check for $100 telling me they had sent in a team to my valley in Nepal and vaccinated the entire population.

Some 15 years later, while on customer calls in Geneva for Morgan Stanley, I stopped by the WHO to visit a scientist I went the school with. It turned out I had become quite famous, as my smallpox cases in Nepal were the last ever discovered.

The WHO certified the world free of smallpox in 1980. The US stopped vaccinating children for smallpox in 1972, as the risks outweighed the reward.

Today, smallpox samples only exist at the CDC in Atlanta frozen in liquid nitrogen at minus 346 degrees Fahrenheit in a high-security level 5 biohazard storage facility. China and Russia probably have the same.

That's because scientists fear that terrorists might dig up the bodies of some British sailors who were known to have died of smallpox in the 19^th century and were buried on the north coast of Greenland remaining frozen ever since. If you need a new smallpox vaccine, you have to start from somewhere.

As for me, I am now part of the 34% of Americans who remain immune to the disease. I’m glad I could play my own small part in ending it.

Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Mt. Everest in 1976

January 7, 2022

Diary, Newsletter, Summary

Global Market Comments
January 7, 2022
Fiat Lux

Featured Trades:

(JANUARY 5 BIWEEKLY STRATEGY WEBINAR Q&A),
(IWM), (RUA), (TSLA), (NVDA), (USO), (TBT), (ROM), (SDS), (ZM), (AAPL), (FCX), (HOOD), (BRKB)

January 5 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the January 5 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.

Q: What’s a good ETF to track the Russell 3,000 (RUA)?

A: I use the Russell 2,000 (IWM) which is really only about the Russell 1500 because 500 companies have been merged or gone bankrupt and they haven't adjusted the index yet. This is the year where value plays and small caps should do better, maybe even outperforming the S&P500. These are companies that do best in a strong economy.

Q: Should I focus on value dividends growth, or stick with the barbell?

A: I think you have to stick with the barbell if you’re a long-term investor. If you’re a short-term trader, try and catch the swings. Sell tech now, buy it back 10% lower. Keep financials; when they peak out you, dump them and go back into tech. It’ll be a trading year, but if a lot of you are just indexing the S&P500 or doubling up through a 2x ETF like the ProShares ultra S&P 500 (SSO), it may be the easiest way to go for this year.

Q: Will higher rates sabotage tech, particularly smaller companies?

A: They’ve already done so with PayPal (PYPL) down 44% in six months—I’d say that’s sabotaged. Same with Square (SQ) and a lot of the other smaller tech companies. So that has happened and will continue to happen a bit more, but we’re really getting into the extreme oversold levels on a lot of these companies.

Q: Should we cash out on the iShares 20 Plus Year Treasury Bond ETF (TLT) summer 150/155 put spread LEAPS?

A: No, because you haven't even realized half of the profit in that yet since there is so much time value left in those options. As long as you stay below $150 in the (TLT), which I'm pretty sure we will, you will get your full 100% profit on that position. On the six month and one year positions, they don’t really move very much because they have so much time value in them. Once you get into the accelerated time decay, which is during the last 3 months before expiration, they catch like a house on fire. So, if you're willing to keep a safe long-term position, this thing will write you a check every day for the next six months or a year to expiration. I know we have absolutely everybody in these deep in the money TLT puts; some people even did $165-$170’s—you know, my widows and orphans crowd—and they are doing well, but not as much as if you’d had a front month.

Q: What scares you most for the next 12 months?

A: Another variant that is more fatal than either Delta or Omicron. Unlikely, but not impossible.

Q: Do you expect Freeport McMoRan (FCX) to break out to the upside?

A: I do, I did the numbers over the vacation for copper production to meet current forecast demands for electric vehicle production. Global copper has to increase 11 times, and that can’t be done, so prices are going to have to go up a lot. One of my concerns with these lofty EV projections (that even I make) is that there aren’t enough commodities in the world to make all these cars with the current infrastructure. And you’re not going to find a replacement for copper—it's just too perfect of an electrical conductor. So, that means higher prices to me—you increase demand 11 times on a stable supply, and it takes 10 years to bring a new copper mine online.

Q: Do you have any open trades?

A: No, and one reason is that I figured they would probably crash the market on the last trading day of the year, which they did. If I had positions, they would have crushed them on the last year and my performance. And all hedge fund traders do this; they try to go 100% cash at the end of the year to avoid these things. And whatever you lost on Friday you made back on Monday morning at the expense of last year's performance. But you have to wait 15 months to get paid on today's performance, and, that is the reason I do that. So, looking for higher highs to sell, lower lows to buy.

Q: Should I be buying NVIDIA (NVDA) and Tesla (TSLA) on the dip?

A: Absolutely yes, but Tesla's prone to 45% corrections—we had one last year and the year before—and Nvidia tends to have 25% corrections. So yes, NVIDIA could well be the stock of the decade, but you don’t want to buy it right now. It’s starting to lose steam already.

Q: Will ProShares Ultra Technology (ROM) be under pressure?

A: Keep your position small now, take some profits, look to buy on a bigger dip. If the big techs drop 10%, (ROM) will drop 20% and get you below $100.

Q: Do you offer trade alerts on small caps for short term traders?

A: No, because you can’t execute those trades. A lot of them are just so illiquid, you can’t even trade one share unless you want to pay a huge spread. Keep in mind, when I worked at Morgan Stanley (MS), I covered the Rockefeller Foundation, the Ford Foundation, George Soros, Paul Tudor Jones, the government of Abu Dhabi, California State Pension Fund, and a lot of other huge funds; and the last thing they’re interested in is short term trades for the small-cap stocks. So, I don't really know much about those, but they tend to change the names every year anyway. And it really is a beginner trader type area because the volatility is so enormous. You can get 10x moves one day going to zero the next. It is also an area full of scams, cons, and pump and dump schemes.

Q: What is your advice when it comes to the ProShares UltraShort 20+ Year Treasury (TBT)?

A: Short term, take the profits—you just got a $14 point rally in your favor. Short term traders, take profits on bonds here, cover your shorts. Long term investors keep it, the cost of carry is only about 4% right now, not that high, so I would keep it for a great year-end move for 2.5% yields on the ten-year.

Q: I hate oil (USO) because it’s going to zero. Should I keep trading in it?

A: Very few are nimble enough to trade oil, it’s really an insider’s game. No new capital is moving into the oil industry and oil companies themselves won’t invest in their own businesses anymore.

Q: Would you put on a new position on the iShares 20 Plus Year Treasury Bond ETF (TLT) today?

A: No, you don’t sell short things after they move down $14 points. You put them on before that. If I were to do a short-term trade in (TLT) I would be a buyer, I’d maybe buy it for a countertrend rally of maybe $4 or $5 points.

Q: What should I do with my FCX 2023 LEAP?

A: There is enough time on it, so I would keep running it along as is—don’t get greedy. Keep the LEAPS you have and you should do well by it.

Q: Could the iShares 20 Plus Year Treasury Bond ETF (TLT) bottom out in the near term?

A: Yes, it could, on a short-term basis. $141 is the nine-month low for the (TLT), so a great place to take short term profits. (TLT) is right now at $142.56, so we’re approaching that $141 handle closely. Every technical trader on the market’s going to cover their shorts on the $141 or $142 handle, so just congratulate yourself going into this move short, and take the money and run. You take every $14 point move in your favor in the (TLT); and let it rally 5 points and then reestablish, that’s how you trade.

Q: Do you think there will be a delay in the first interest rate hike due to COVID?

A: Yes, Jay Powell is the ultra-dove—any excuse to delay rate hikes, he’ll do it. And the way you’ll know is he’ll delay the end of other things which you don’t see, like daily mortgage bond purchases, daily US Treasury purchases, and other backdoor forms of QE. We’ll know well in advance if he’s going to raise or not by March or even June. We watch this stuff every day, we talk to people at the Fed every week. And remember, the Treasury Secretary Janet Yellen is a good friend of mine, I get a good handle on these things; this is why 99% of my bond trades make money.

Q: What if I have the $135-$140 put spread in January?

A: Sell it now, take what you can, take the hit; because that’ll expire at zero unless we break down to new lows on the (TLT) in the next ten days or so. That's not a good bet, especially on top of a $14 point drop. Capture what you can on that one and keep the cash for a better entry point. That’s exactly what I did—I sold all my January positions yesterday no matter what they were, because when you get to two weeks to expiration the moves become random.

Q: Do you think inflation will last longer than expected?

A: No, I think it will last shorter than expected because I think at least half of the inflation rate, if not more, are caused by supply chain problems which will end within the next six months, and therefore lead to the over-order problem that I was talking about earlier.

Q: What’s your outlook on energy this year?

A: It could go higher. On the way to zero, you’re going to have several double, tripling’s, even 10x increases in the price of oil, like we saw in the last 18 months. We went from negative numbers to 80, and what happens is oil becomes more volatile as the supply becomes more variable, that's a natural function. But trading this is not for non-professionals.

Q: Since sector rotation is happening, do you think we should sell all tech positions?

A: Short term yes, long term no. Tech will still lead with earnings, and even if they have a bad five months coming, they have a terrific long-term view. For the last 30 years, every sale of tech has been a mistake, especially in Apple (AAPL). So if you’re a trader, yes, you should have been selling since November. If you’re a long-term investor, keep them all.

Q: Is the ProShares UltraShort S&P 500 (SDS) a good position to buy up when the market timing index goes into sell territory?

A: Yes it is, and that will probably work better this year than it did last year because narrow range volatile markets are much more technically oriented than straight-up markets or long term bull markets. Pay close attention to those markets, you could make a lot of money trading them.

Q: Do Teslas have good car heaters for climates up North in -25 or -30?

A: You plug them in. When it gets below zero you actually get a warning message on your Tesla app telling you to plug it in, and then the car heats itself off of the power input. Otherwise, if you get to below zero, the range on the car drops by half. If you have a 300-mile range car like I do and then you freeze it, it drops to like 150 miles. In Tahoe, I keep my car plugged in all the time when I'm not using it, just to keep it warm and friendly.

Q: Is Zoom (ZM) a good buy here?

A: No, I think they’re going to keep punishing these overpriced small cap techs like they have been. We’re a long way from value on small tech. That was a 2020 story.

Q: What about Berkshire Hathaway (BRKB)?

A: Berkshire Hathaway is doing a major breakout because they own financials up the wazoo and they’re all breaking out. And YOU should be long up the wazoo on these things because I’ve been recommending them for the last 4 months.

Q: What do you think of Robinhood (HOOD)?

A: Robinhood I like long term, but it is high risk, high volatility. It is down 78% from the IPO so it is busted. Kind of tempting down here, but again, all the non-earning overvalued stocks are getting their clocks cleaned right here; I'm not in a rush to get involved.

Q: When you enter a LEAP, is the straight call or call spread?

A: It’s a call spread. You finance the high cost of one-year options by selling short a call option against it further out of the money. And that way you can get enormous leverage for practically nothing, 10 or 20 times in some cases, depending on how you structure the strikes.

Q: Best stock to play Copper?

A: Freeport McMoRan (FCX). I’ve been recommending it since it was $4.00.

Q: Oil is the pain train until EVs actually take over.

A: That’s true, and they haven’t. EVs have about a 6% market share now of new car sales worldwide, but that could rapidly accelerate given all the subsidies that EVs are getting. Also, we have many future recessions to worry about, during which oil could easily drop 290% like it did last year. If you can hack that kind of volatility, go for it, but I find better things to do quite honestly. And I think my next oil trade will be a short, especially if we go over $100.

Q: What about Bitcoin?

A: It could go sideways in a range for a while. If we can’t hold the 200-day, we’re going back down to the high 30,000s, where we were at the start of the year—we could give up the entire year of 2021. Bitcoin also suffers from rising interest rates since they don’t yield anything.

Q: Is this recorded?

A: Yes, the webinar recording goes out in about 2 hours. Log into the madhedgefundtrader.com website and go to my account, where you’ll find it with all the different products you’ve purchased.

Q: I just closed out my (TLT) 150 put option for the biggest single trade profit in my life; I just made 20% of my annual salary alone today. Thank you, John!

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 ten years are there in all their glory.

Good Luck and Stay Healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader