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The Market Outlook for the Week Ahead, or A Supercharged Economy is Supercharging the Stock Market

Stocks have risen at an annualized rate of 40% so far in 2021. If that sounds too good to be true, it is.

But then, we have the greatest economic and monetary stimulus of all time rolling out also.

Of the $10 trillion in government spending that has or is about to be approved, virtually none of it has been spent. There hasn’t been enough time. It turns out that it is quite hard to spend a trillion dollars. Corporate America and its investors are salivating.

The best guess is that the new spending will create five million jobs for the economy over eight years, taking the headline Unemployment Rate down to a full employment 3-4%. The clever thing about the proposal is that it is financed over 15 years, which takes advantage of the current century's low interest rates.

That is something many strategists have been begging the US Treasury to do for years. Take the free money while it is on offer.

There is something Rooseveltean about all this, with great plans and huge amounts of money, like 10% of GDP on the table. But then we did just come out of a Great Depression, with unemployment peaking at 25 million, the same as in 1933.

The package is so complex that it is unlikely to pass by summer. Until then, stocks will probably continue to rally on the prospect.

It makes my own forecast of a 30% gain in stocks and a Dow Average of 40,000 for 2021 look overly cautious, conservative, and feeble (click here). But then, you have to trade the market you have, not the one you want.

And here is the really fun part. After a grinding seven-month-long correction, technology stocks have suddenly returned from the dead. All the best names gained 10% or more in the previous four-day holiday-shortened week. Clearly, investors have itchy trigger fingers with tech stocks at these levels.

In the meantime, technology stock prices have fallen 20-50% while earnings have jumped by 20% to 40%. What was expensive became cheap. It was a setup that was begging to happen.

This is great news because technology stocks are the core to all non-indexed retirement funds.

The S&P 500 (SPX) blasted through 4,000, a new all-time high, off the back of one of the largest infrastructure spends in history. Job creation over the next eight years is estimated at 5 million. Corporate earnings will go through the roof. Tech is back from the dead. Leaders were semiconductor equipment makers like my old favorites, Applied Materials (AMAT) and Lam Research (LRCX). The Volatility Index (VIX) sees the $17 handle, hinting at much higher to come. The next leg up for the Roaring Twenties has begun!

Biden Infrastructure Bill Tops $2.3 Trillion. Of course, some of it isn’t infrastructure but other laudable programs that starved under the Trump administration, like spending on seniors (I’m all for that!). Still, spending is spending, and this will turbocharge the economy all the way out to say….2024. The impact on interest rates will be minimal as long as the Fed keeps overnight rates near zero, as they have promised to do for nearly three years. Making the power grid carbon-free by 2035 is a goal and would require a 50% increase in solar national installations. Infrastructure spending is always a win-win because the new tax revenues it generates always pay for it in the end.

March Nonfarm Payroll Report exploded to the upside, adding a near record 917,000 jobs, and taking the headline Unemployment Rate down to 6.0%. Employers are front running Biden’s infrastructure plans, hiring essential workers while they are still available. Look for labor shortages by summer, especially in high paying tech. Leisure & Hospitality was the overwhelming leader at a staggering 280,000, followed by Government at 136,000 and Construction at 110,000.

Goldilocks lives on, with a 1.0% drop in Consumer Spending in February, keeping inflation close to zero. The Midwest big freeze is to blame. You can’t buy anything when there’s no gas for the car and no electricity once you get there, as what happened in Texas. The $1,400 stimulus checks have yet to hit much of the country, although I got mine. It couldn’t be a better environment for owning stocks. Keep buying everything on dips.

Consumer Confidence soared, up 19.3 points to 109 in February, according to the Conference Board. It’s the second-biggest move on record. A doubling of the value of your home AND your stock portfolio in a year is making people feel positively ebullient. Oh, and free money from the government is in the mail.

The Suez Canal reopened, allowing 10% of international trade to resume. A massive salvage effort that freed the 200,000 ton Ever Given. The ship will be grounded for weeks pending multiple inspections. Somebody’s insurance rates are about to rachet up. It all shows how fragile is the international trading system. Deliveries to Europe will still be disrupted for months. It puts a new spotlight on the Arctic route from Asia to Europe, which is 4,000 nm shorter.

Boeing (BA) won a massive order, some 100 planes from Southwest Air (LUV), practically the only airline to use the pandemic to expand. Boeing can fill the order almost immediately from 2020 cancelled orders for the $50 million 737 MAX. Keep buying both (BA), (LUV), and (AKL) on dips.

Tesla blows away Q1 deliveries, with a 184,400 print, or 47.5% high than the 2021 rate. That is without any of the new Biden EV subsidies yet to kick in. Lower priced Model 3 sedans and Model Y SUVs accounted for virtually all of the report. The Shanghai factory is kicking in as a major supplier to high Chinese demand. The one million target for 2021 is within easy reach. Traders saw this coming (including me) and ramped the stock up $100. Buy (TSLA) on dips. My long-term target is $10,000.

United Airlines hires 300 pilots to front-run expected exposure summer travel. CEO Scott Kirby says domestic vacation travel has almost completely recovered. Keep buying (LUV), (AKL), and (DAL) on dips.

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!

My Mad Hedge Global Trading Dispatch profit reached 0.38% gain during the first two days of April on the heels of a spectacular 20.60% profit in March.

I used the Monday low to double up my long in Tesla. After that, it was off to the races for all of tech. I caught a $100 move on the week.

My new large Tesla (TSLA) long expires in 9 trading days.

That leaves me with 50% cash and a barrel full of dry powder.

My 2021 year-to-date performance soared to 44.47%. The Dow Average is up 9.40% so far in 2021.

That brings my 11-year total return to 467.02%, some 2.08 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 41.20%, the highest in the industry.

My trailing one-year return exploded to positively eye-popping 108.51%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.

We need to keep an eye on the number of US Coronavirus cases at 30.6 million and deaths topping 555,000, which you can find here.

The coming week will be dull on the data front.

On Monday, April 5, at 10:00 AM, the ISM Non-Manufacturing Index for March is released.

On Tuesday, April 6, at 10:00 AM, US Consumer Inflation Expectations for March are published.

On Wednesday, April 7 at 2:00 PM, the minutes of the last Federal Open Market Committee Meeting are published.

On Thursday, April 8 at 8:30 AM, the Weekly Jobless Claims are printed.

On Friday, April 9 at 8:30 AM we get the Producer Price Index for March. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, I recently turned 69, so I used a nice day to climb up to the Lake Tahoe High Sierra rim at 9,000 feet, found a nice granite boulder sit on to keep dry, and tried to figure out what it was all about.

I’ve been very lucky.

I had a hell of a life that I wouldn’t trade for anything. I wouldn’t change a bit (well, maybe I would have bought more Apple shares at a split-adjusted 30 cents in 1998. I knew Steve was going to make it).

Since I’ve always loved what I did, journalist, trader, combat pilot, hedge fund manager, writer, I don’t think I have “worked” a day in my life.

I fought for things I believed in passionately and won, and kept on winning. It’s good to be on the right side of history.

I have loved and lost and loved again and lost again, and in the end outlived everyone, even my younger brother, who died of Covid-19 a year ago. The rule here is that it is always the other guy who dies. My legacy is five of the smartest kids you ever ran into. They’re great traders as well.

So I’ll call it a win.

I visited my orthopedic surgeon the other day to get a stem cell top-up for my knees and she asked how long I planned to keep coming back. I told her 30 years, and I meant it.

There’s nothing left for me to do but to make you all savvy in the markets and rich, something I leap out of bed every morning at 5:00 AM to accomplish.

Enjoy your weekend.

Stay healthy.

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

April 1, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
April 1, 2021
Fiat Lux

FEATURED TRADE:

(A RULE MAKER IN HEALTHCARE)
(TDOC), (SQ), (SHOP), (ROKU), (TSLA)

A Rule Maker in Healthcare

Biotech Letter

Monopolies. In any industry, they’re typically called rule breakers.

For healthcare, these are rule-making stocks that ultimately rise to dominance that they eventually win government-sanctioned monopolies and establish massive networks.

For biotechnology and healthcare investors who like to err on the side of caution but still want to take a dip on monopoly-like players, one stock stands out: Teladoc Health (TDOC).

Teladoc, which currently has a market capitalization of $30 billion, is one of those groundbreaking companies that use technology to disrupt the way we live.

The company’s potential is actually getting compared to the likes of other tech movers such as (SQ), Shopify (SHOP), Roku (ROKU), and Tesla (TSLA).

So far, Teladoc stock has gone up 144% over the past 12 months.

On a year-over-year basis, the total number of visits for Teladoc more than doubled from 4.14 million to reach a whopping 10.59 million. Even the international visits rose by 71%.

As expected, the COVID-19 pandemic served as a major boon to its already thriving business.

Although it wasn’t as popular at the time, the company’s operating model offered a myriad of benefits for the healthcare industry.

For one, telehealth visits are way more convenient for the patients. Since the visits won’t take as much time and effort from their end, the patients would be more motivated to regularly check in with their doctors.

In turn, the doctors would be able to offer higher-quality care since the cooperation of the patients means they can also monitor the symptoms and progress better.

Best of all, the patients are typically billed at cheaper rates compared to office visits.

I think the last one makes Teladoc an attractive winner in the eyes of practically all health insurers.

Teladoc is the biggest telehealth services provider in the United States, and one of the major steps that the company took to cement its reputation as a virtual health leader is its splashy $18.5 billion merger with Livongo in 2020.

If you haven’t heard of Livongo, this company was growing incredibly faster than Teladoc even before the merger.

Basically, Livongo collects copious amounts of information from patients. Using artificial intelligence, the company then sends personalized tips and reminders to their enrolled members with the goal to improve their overall quality of life.

Most of the patients suffer from chronic conditions, which means they would require regular nudges to ensure that they take the proper medications on time.

For example, some of Livongo’s users have diabetes. The company monitors them via wireless glucose meters, guiding the users to follow a positive lifestyle when their blood sugars begin to spike.

At the time of the merger, Livongo has already secured over 500,000 enrolled members for its diabetes platform.

This is impressive as it represents roughly 2% of the entire diabetes pool in the United States.

Aside from diabetes, Livongo has also been working on other chronic conditions like hypertension and weight management.

Considering that hypertension accounts for 7.6 million deaths per year worldwide and the extensive list of health problems associated with obesity, such as coronary heart disease and end-stage renal disease, I think Livongo has developed a highly sustainable business model that’s perfect for the “new normal.”

More importantly, the combination of Livongo and Teladoc will now allow the two companies to cross-sell their services to their users.

As for those who think that Teladoc is only a pandemic play, the company didn’t really need the pandemic for its business model to succeed.

Prior to COVID-19, its sales have been growing by an average of 75% per annum since 2013.

With its merger with Livongo, I think Teladoc has developed a stronger all-weather model for growth.

Teladoc is a rule maker and a first-mover, with the company moving the multi-trillion dollar healthcare industry to the internet.

At this point, it is the dominant name in the arena and the undisputed leader in telehealth. With everything it has to offer, I believe Teladoc is a long-term investing opportunity and it would be a good idea to buy on the dip.

April 1, 2021

Diary, Newsletter, Summary

Global Market Comments
April 1, 2021
Fiat Lux

Featured Trade:

(MARCH 31 BIWEEKLY STRATEGY WEBINAR Q&A),
(FB), (ZM), ($INDU), (X), (NUE), (WPM), (GLD), (SLV), (KMI), (TLT), (TBT), (BA), (SQ), (PYPL), (JNP), (CP), (UNP), (TSLA), (GS), (GM), (F)

March 31 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Research

Below please find subscribers’ Q&A for the March 31 Mad Hedge Fund Trader Global Strategy Webinar broadcast from frozen Incline Village, NV.

Q: Would you buy Facebook (FB) or Zoom (ZM) right here?

A: Well, Zoom was kind of a one-hit wonder; it went up 12 times on the pandemic as we moved to a Zoom economy, and while Zoom will permanently remain a part of our life, you’re not going to get that kind of growth in stock prices in the future. Facebook on the other hand is going to new highs, they just announced they’re laying a new fiber optic cable to Asia to handle a 70% increase in traffic there. So, for the longer term and buying here, I think you get a new high on Facebook soon; there's maybe another 20-30% move in Facebook this year.

Q: I can’t really chase these trades here, right?

A: Correct; if you wait any more than a day or 2 on executing a trade alert, you’re missing out on all of the market timing value we bring to the game. So that's why I include an entry price and the “don’t pay more than” price. And we never like to chase, except last year, when we did it almost all the time. But last year was a chase market, this year not so much.

Q: How are LEAP purchase notifications transmitted?

A: Those go out in the daily newsletter Global Trading Dispatch when I see a rare entry point for a LEAP, then we’ll send out a piece and notify everybody. But it’s very unusual to get those. Of course, a year ago we were sending out lists of LEAPS ten at a time when the Dow Average ($INDU) is at 18,000. But that is not now, you only wait for those once or twice a year. On huge selloffs to get into two-year-long options trades, and that is definitely not now. The only other place I've been looking out for LEAPS right now are really bombed out technology stocks begging for a rotation. Concierge members get more input on LEAPS and that is a $10,000 a year upgrade.

Q: What are your thoughts on silver (SLV) and long-term gold (GLD)?

A: I see silver going to $50 and eventually $100 in this economic cycle, but it's out of favor right now because of rising interest rates. So, once we hit 2.00% in the ten years, it’s not only off to the races for tech but also gold and silver. Watch that carefully because your entry point may be on the horizon. That makes Wheaton Precious Metals (WPM) a very attractive “BUY” right now.

Q: Are you going to trade the (TLT)?

A: Absolutely yes, but I’m kind of getting picky now that I’m up 42% on the year; and I only like to sell 5-point rallies, which we got for about 15 minutes last week. And I also only like to buy 5- or 10-point dips. Keep your trading discipline and you’ll make a ton of money in this market. Last year we made about 30% trading bonds on about 30 round trips.

Q: How much further upside is there for US Steel (X) and Nucor Corp. (NUE)?

A: More. There's no way you do infrastructure without using millions of tons of steel. And I kind of missed the bottom on US Steel because it had been a short for so long that it kind of dropped off the radar for me. I think we have gone from $4 to 27 since last year, but I think it goes higher. It turns out the US has been shutting down steel production for decades because it couldn't compete with China or Japan, and now all of a sudden, we need steel, and we don’t even make the right kind of steel to build bridges or subways anymore—that has to be imported. So, most of the steel industry here now is working for the car industry, which produces cold-rolled steel for the car body panels. Even that disappears fairly soon as that gets taken over by carbon fiber. So enough about steel, buy the dips on (X) and (NUE).

Q: What stocks should I consider for the infrastructure project?

A: Well, US Steel (X) and Nucor Corp (NUE) would be good choices; but really you can buy anything because the infrastructure package, the way it’s been designed, is to benefit the entire economy, not just the bridge and freeway part of it. Some of it is for charging stations and electric car subsidies. Other parts are for rural broadband, which is great for chip stocks. There is even money to cap abandoned oil wells to rope in Texas supporters. All of this is going to require a massive upgrade of the power grid, which will generate lots of blue-collar jobs. Really everybody benefits, which is how they get it through Congress. No Congressperson will want to vote against a new bridge or freeway for their district. That’s always the case in Washington, which is why it will take several months to get this through congress because so many thousands of deals need to be cut. I’ve been in Washington when they’ve done these things, and the amount of horse-trading that goes on is incredible.

Q: Is it a good thing that I’ve had the United States Treasury Bond Fund (TLT) LEAPS $125 puts for a long time.

A: Yes. Good for you, you read my research. Remember, the (TLT) low in this economic cycle is probably around $80, so you probably want to keep rolling forward your position….and double up on any ten-point rally.

Q: Do you think we get a pop back up?

A: We do but from a lower level. I think any rallies in the bond market are going to be extremely limited until we hit the 2.00%, and then you’re going to get an absolute rip-your-face-off rally to clean out all the short term shorts. If you're running put LEAPS on the (TLT) I would hang on, it’s going to pay off big time eventually.

Q: If we see 3.00% on the 10-year this year, do you see the stock market crashing?

A: I don’t think we’ll hit 3.00% until well into next year, but when we do, that will be time for a good 10% stock market correction. Then everyone will look around again and say, “wow nothing happened,” and that will take the market to new highs again; that's usually the way it plays out. Remember, then year yields topped all the way up at 5.00% when the Dotcom Bubble topped in April 2020.

Q: Has the airline hospitality industry already priced in the reopening of travel?

A: No, I think they priced in the hope of a reopening, but that hasn’t actually happened yet, and on these giant recovery plays there are two legs: the “hope for it” leg, which has already happened, and then the actual “happening” leg which is still ahead of us. There you can get another double in these stocks. When they actually reopen international travel to Europe and Asia, which may not happen this year, the only reopening we’re going to see in the airline business is in North America. That means there is more to go in the stock price. Also coming back from the brink of death on their financial reports will be an additional positive.

Q: Do you think a corporate tax increase will drive companies out of the US again and raise the unemployment rate?

A: Absolutely not. First of all, more than half of the S&P 500 don’t even pay taxes, so they’re not going anywhere. Second, I think they will make these offshoring moves to tax-free domiciles like Ireland illegal and bring a lot of tax revenues back to the US. And third, all Biden is doing is returning the tax rate to where it was in 2017; and while the corporate tax rate was 35%, the stock market went up 400% during the Obama administration, if you recall. So stocks aren't really that sensitive to their tax rates, at least not in the last 50 years that I’ve been watching. I'm not worried at all. And Biden was up on the polls a year ago talking about a 28% tax rate; and since then, the stock market has nearly doubled. The word has been out for a year and priced in for a year, and I don't think anybody cares.

Q: What about quantum computers?

A: I’m following this very closely, it’s the next major generation for technology. Quantum computers will allow a trillion-fold improvement in computing power at zero cost. And when there's a stock play, I will do it; but unfortunately, it’s not (IBM), because we’re not at the money-making stage on these yet. We are still at the deep research stage. The big beneficiaries now are Alphabet (GOOGL), Microsoft (MSFT), and Amazon (AMZN).

Q: Is it time to buy Chinese stocks?

A: I would say yes. I would start dipping in here, especially on the quality names like Tencent (TME), Baidu (BIDU), and Alibaba (BABA), because they’ve just been trashed. A lot of the selloff was hedge fund-driven which has now gone bust, and I think relations with China improve under Biden.

Q: Your timing on Tesla (TSLA) has been impeccable; what do you look for in times of pivots?

A: Tesla trades like no other stock, I have actually lost money on a couple of Tesla trades. You have to wait for things to go to extremes, and then wait two more days. That seems to be the magic formula. On the first big selloff go take a long nap and when you wake up, the temptation to buy it will have gone away. It always goes up higher than you expect, and down lower than you expect. But because the implied volatilities go anywhere from 70% to 100%, you can go like 200 points out of the money on a 3-week view and still make good money every month. And that’s exactly what we’re going to do for the rest of the year, as long as the trading’s down here in the $500-$600 range.

Q: Is Editas Medicine (EDIT), a DNA editing stock, still good?

A: Buy both (EDIT) and Crisper (CRSP); they both look great down here with an easy double ahead. This is a great long-term investment play with gene editing about to dominate the medical field. If you want to learn more about (EDIT) and (CRSP) and many others like them, subscribe to the Mad Hedge Fund Biotech & Healthcare Letter because we cover this stuff multiple times a week (click here).

Q: Is the XME Metals ETF a buy?

A: I would say yes, but I'd wait for a bigger dip. It’s already gone up like 10X in a year, but the outlook for the economy looks fantastic. (XME) has to double from here just to get to the old 2008 high and we have A LOT more stimulus this time around.

Q: What about hydrogen?

A: Sorry, I am just not a believer in hydrogen. You have to find someone else to be bullish on hydrogen because it’s not me. I've been following the technology for 50 years and all I can say is: go do an image Google for the name “Hindenburg” and tell me if you want to buy hydrogen. Electricity is exponentially scalable, but Hydrogen is analog and has to be moved around in trucks that can tip over and blow up at any time. Hydrogen batteries are nowhere near economic. We are now on the eve of solid-state lithium-ion batteries which improve battery densities 20X, dropping Tesla battery weights from 1,200 points to 60 pounds. So “NO” on hydrogen. Am I clear?

Q: Why do you do deep-in-the-money call and put spreads?

A: We do these because they make money whether the stock goes up down or sideways, we can do them on a monthly basis, we can do them on volatility spikes, and make double the money you normally do. The day-to-day volatility on these positions is very low, so people following a newsletter don’t get these huge selloffs and sell at bottoms, which is the number one source of retail investor losses. After 13 years of trade alerts, I have delivered a 40.30% average annualized return with a quarter of the market volatility. Most people will take that.

Q: Is ProShares Ultra Short 20 Year Plus Treasury ETF(TBT) still a play for the intermediate term?

A: I would say yes. If ten-year US Treasury bonds Yields soar from 1.75% to 5.00% the (TBT) should rise from $21 to $100 because it is a 2X short on bonds. That sounds like a win for me, as long as you can take short term pain.

Q: What is the timing to buy TLT LEAPS?

A: The answer was in January when we were in the $155-162 range for the (TLT). Down here I would be reluctant to do LEAPS on the TLT because we’ve already had a $25 point drop this year, and a drop of $48 from $180 high in a year. So LEAP territory was a year ago but now I wouldn’t be going for giant leveraged trades. That train has left the station. That ship has sailed. And I can’t think of a third Metaphone for being too late.

Q: Would you buy Kinder Morgan (KMI) here?

A: That’s an oil exploration infrastructure company. No, all the oil plays were a year ago, and even six months ago you could have bought them. But remember, in oil you’re assuming you can get in and out before it crashes again, it’s just a matter of time before it does. I can do that but most of you probably can’t, unless you sit in front of your screens all day. You’re betting against the long-term trend. It works if you’re a hedge fund trader, not so much if you are a long-term investor. Never bet against the long-term trend and you always have a tailwind behind you. All surprises work to your benefit.

Q: If you get a head and shoulders top on bitcoin, how far does it fall?

A: How about zero? 80% is the traditional selloff amount for Bitcoin. So, the thing is: if bitcoin falls you have to worry about all other investments that have attracted speculative interest, which is essentially everything these days. You also have to worry about Square (SQ), PayPal (PYPL), and Tesla (TSLA), which have started processing Bitcoin transactions. Bitcoin risk is spread all over the economy right now. Those who rode the bandwagon up will ride it back down.

Q: Is Boeing (BA) a long-term buy?

A: Yes, especially because the 737 Max is back up in the air and China is back in the market as a huge buyer of U.S. products after a four-year vacation. Airlines are on the verge of seeing a huge plane shortage.

Q: What about Ags?

A: We quit covering years ago because they’re in permanent long-term downtrends and very hard to play. US farmers are just too good at their jobs. Efficiencies have double or tripled in 60 years. Ag prices are in a secular 150-year bear market thanks to technology.

Q: Is this recorded to watch later?

A: Yes, it goes on our website in about two hours. For directions on where to find it, log in to your www.madhedgefundrader.com account, go to “My Account,” and it will be listed under there, as are all the recorded webinars of the last 12 years.

Q: Would you buy Canadian Pacific (CP) here, the railroad?

A: No, that news is in the price. Go buy the other ones—Union Pacific (UNP) especially.

Q: What are your thoughts on Bitcoin?

A: We don’t cover Bitcoin because I think the whole thing is a Ponzi scheme, but who am I to say. There is almost ten times more research and newsletters out there on Bitcoin as there is on stock trading right now. They seem to be growing like mushrooms after a spring storm. There are always a lot of exports out there at market tops, as we saw with gold in 2010 and tech stock in 2000.

Q: What do you think about Juniper Networks (JNP)?

A: It’s a Screaming “BUY” right here with a double ahead of it in two years. I’m just waiting for the tech rotation to get going. This is a long-term accumulate on dips and selloffs.

Q: Did the Archagos Investments hedge fund blow threaten systemic risk?

A: No, it seems to be limited just to this one hedge fund and just to the people who lent to it. You can bet banks are paring back lending to the hedge fund industry like crazy right now to protect their earnings. I don’t think it gets to the systemic point, but this is the Long Term Capital Management for our generation. I was involved in the unwind of the last LTCM capital, which was 23 years ago. I was one of the handful of people who understood what these people were even doing. So, they had to bring me in on the unwind and huge fortunes were made on that blowup by a lot of different parties, one of which was Goldman Sachs (GS). I can tell you now that the statute of limitations has run out and now that it's unlikely I'll ever get a job there, but Goldman made a killing on long-term capital, for sure.

Q: Will Tesla benefit from the Biden infrastructure plan?

A: I would say Tesla is at the top of the list of companies the Biden administration wants to encourage. That means more charging stations and more roads, which you need to drive cars on, and bridges, and more tax subsidies for purchases of new electric cars. It’s good not just Tesla but everybody’s, now that GM (GM) and Ford (F) are finally starting to gear up big numbers of EVs of their own. By the way, I don't see any of the new startups ever posing a threat to Tesla. The only possible threats would be General Motors, Ford, and Volkswagen, which are all ten years behind.

Q: Would you put 10% of your retirement fund into cryptocurrencies?

A: Better to flush it down the toilet because there’s no commission on doing that.

Q: Is growing debt a threat to the economy? How much more can the government borrow?

A: It appears a lot more, because Biden has already indicated he’s going to spend ten trillion dollars this year, and the bond market is at a 1.70%—it’s incredibly low. I think as long as the Fed keeps overnight rates at near-zero and inflation doesn't go over 3%, that the amount the government can borrow is essentially unlimited, so why stop at $10 or $20 trillion? They will keep borrowing and keep stimulating until they see actual inflation, and I don’t think we will see that for years because inflation is being wiped out by technology improvements, as it has done for the last 40 years. The market is certainly saying we can borrow a lot more with no serious impact on the economy. But how much more nobody knows because we are in uncharted territory, or terra incognita.

To watch a replay of this webinar 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

March 29, 2021

Diary, Newsletter, Summary

Global Market Comments
March 29, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WEEK THAT NEVER WAS),
(SPY), (TLT), (TBT), (TSLA), (CSCO), (ORCL), (INTC)

The Market Outlook for the Week Ahead, or The Week that Never Was

Diary, Newsletter, Research

Of course, WWII historians know well the man who never was, the popular name for Operation Mincemeat.

In 1943, British intelligence found a homeless man who died on the streets of London, dressed him up as a Royal Marine Major William Martin, and released his body from a submarine off the coast of Spain, a German ally.

Handcuffed to his wrist was a briefcase with highly detailed plans for the allied invasion of Greece and the Balkans. The Germans shifted ten divisions to defend the region.

When the allies invaded Sicily instead, it came completely out of the blue. The invading American and British forces found the island almost undefended and inadequately manned and supplied by Italian troops. The allies planned for three months to capture Sicily. Instead, they did it in a mere 38 days. Allied losses came in at a tenth of those expected, thanks to Royal Marine Major William Martin.

The analogy here is that last week, we witnessed the market that never was. Stocks went down, then up. Bonds went up, then down. Even Tesla was virtually unchanged. It all ended up as a big fat zero for traders.

What all of this means for us investors is a subject of heated discussion among strategists. Of course, the Cassandras are always out there arguing that this is all proof that markets are peaking and that the mother of all stock market crashes is just ahead of us.

I take a different tack.

I think we are well into a long-overdue “time” correction whereby stocks go sideways for weeks or months before resuming their heroic assault on new highs. The timing will be dictated by the frantic reversal of the bond market at a ten-year Treasury yield of 2.00%.

Investors will rotate from the newly expensive recovery plays like banks into the newly cheap, such as technology stocks. Notice the sudden recent interest in legacy companies like Oracle (ORCL), Intel (INTC), and Cisco Systems (CSCO), which completely missed the great 2020 tech rally.

All of this sets up perfectly for the barbell portfolio which I have been advocating all year.

If there is a selloff, it will be by things that normal people don’t own. Those include SPACS, anything the Reddit crowd chases, stay-at-home stocks, and very high-priced tech stocks with no earnings.

Much focus has been placed on the Taiwanese-owned Ever Given stuck in the Suez Canal. As a Middle Eastern war correspondent for many years, I spent endless hours debating with my compatriots over what closure of the canal would mean.

What hasn’t been mentioned was that the accident was not caused by a Chinese captain, but Egyptian pilot ships are required to take on to raise revenues, and bribes, for the impoverished country. This all happened in the middle of a sandstorm where visibility is near zero.

I can tell you right now that they won’t get the Ever Given off there until they start to unload containers and lift off some weight so the 200,000-ton ship can rise of its own accord. Good luck with that in the middle of the Sinai Desert. Why not just sell all the contents on Amazon and have them deliver it for free as part of their prime membership?

This is a debacle that will last weeks, if not months, and will cost $9 billion a day in international trade until it’s over. In the meantime, commercial shippers have asked for protection from pirates from the US Navy as they navigate the unfamiliar water around the tip of Africa.

The Mad Hedge Summit Videos are Up, from the March 9,10, and 11 confab. Listen to 27 speakers opine on the best strategies, tactics, and instruments to use in these volatile markets. The product discounts offered last week are still valid. Start, stop, and pause the videos at your leisure. Best of all, access to the videos is FREE. Access them all by clicking here, click on CURRENT SUMMIT REPLAYS in the upper right-hand corner, and then choose the speaker of your choice.

Weekly Jobless Claims dive by 100,000, to 684,000, a one-year low. The decline was led by Illinois and Ohio. Labor shortages are popping up around the country in skilled areas, but bars and restaurants are still lagging severely.

Huge Office Cuts are coming, with execs planning a permanent 20% cut. Better to give the money to shareholders. Downtowns across the country will change beyond all recognition. How do you turn an office into an apartment?

CP Rail buys Kansas City Southern, for $25 billion, further concentrating the north American rail industry. It’s a steal because an economy entering a decade-long boom moves lots of stuff. It’s also a great North/South international trade play, which is recovering strongly with the exit of our last president. I used to ride box cars on the old Canadian Pacific back in the sixties (you can’t hitch hike where there are no cars), and occasionally the engineers would let me drive. It suddenly makes Norfolk South (NSC) and Union Pacific (UNP) look very tempting.

Another Tesla $3,000 Target was issued by Ark’s Cathie Wood, an early investor. Cathie’s Ark Innovation Fund ETF was up 180% last year largely on the strength of a massive Tesla (TSLA) holding. Her bear case is a low of $1,500 by 2025, nearly triple the current price. She has only one more triple to go to get to my own $10,000 forecast.

Biden has $3 Trillion More to Spend on top of the just passed $1.9 trillion rescue package. It's all rocket fuel for the stock market, not so much for bonds. The money will be spent on a mix of old-line freeway and bridge repair along with new spending on decarbonizing the power grid and social measures. It will be financed by tax hikes on those earning over $400,000. Remember, Roosevelt hiked the maximum tax rate to 90% on the wealthy, where it stayed for 30 years, and Biden is old enough to remember.

Daily Air Travelers top 1.5 Million, for the first time in a year. The pandemic low was 200,000 a day. It’s an indication of how anxious Americans have become to travel, and how strong the imminent economic boom will be.

Intel to build two chip fabs for $20 billion in Arizona to address the current severe shortage. US construction is a positive as it helps reduce reliance on foreign supplies. Too bad it will still leave them five years behind (AMD), but it’s a major move in the right direction. It deals with everything investors wanted to hear and moves them solidly into the 10nm architecture market. Buy (INTC) on dips.

New Home Sales Dive, off 18.2% in February, now that the free money train has left the station. Weather was blamed as a factor, with giant snowstorms slamming much of the country. Shortage of supply is another big issue. Some big builders are basically out of inventory and are reduced to selling floor plans with extended completion dates.

US Dollar (UUP) hits a four-month high, with a major assist from rising US bond interest rates. Expect the rally to continue until ten-year yields hit 2.00%, then sell the daylights out of it. With the US money supply growing at a near exponential 30% annual rate, there’s no way the dollar strength can continue. When you increase the supply, you decrease the value, simple supply and demand. My first pick is to buy the Aussie (FXA) a call option on a global synchronized economic recovery.

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000, here we come!

It’s amazing how well patience can help your performance. My Mad Hedge Global Trading Dispatch profit reached a super-hot 18.61% so far in March on the heels of a spectacular 13.28% profit in February.

It was a go-nowhere week in the market, so I limited myself to a single trade all week, a double short in the bond market (TLT) on top of a welcome $5 rally. The position turned immediately profitable.

I still have a deep in-the-money call spread Tesla (TSLA) that is profitable and expires in 14 trading days. That leaves me with 70% cash and a barrel full of dry powder.

This is my fifth double-digit month in a row. My 2021 year-to-date performance soared to 42.10%. The Dow Average is up 9.9% so far in 2021.

That brings my 11-year total return to 464.65%, some 2.08 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 41.30%.

My trailing one-year return exploded to positively eye-popping 119.39%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.

We need to keep an eye on the number of US Corona virus cases at 30.2 million and deaths topping 550,000, which you can find here.

Thankfully, death rates have slowed dramatically, but Obituaries are still the largest sector in the newspaper. At this point, some 47% of the US population has achieved immunity through vaccination or catching the disease. Herd immunity is near.

The coming week is a big one for jobs data.

On Monday, March 29, at 9:00 AM, the Dallas Fed Manufacturing Index for March is released.

On Tuesday, March 30, at 9:00 AM, the S&P Case Shiller National Home Price Index for January is published.

On Wednesday, March 31 at 8:15 AM, the ADP Challenger Private Employment Report for March is out. Pending Home Sales for February are indicated at 9:00 AM.

On Thursday, April 1 at 8:30 AM, the Weekly Jobless Claims are published.

On Friday, April 2 at 8:30 AM we get the Nonfarm Payroll Report for March. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, tax time is coming up and let me tell you, I have absolutely the best IRS story of all time.

It comes from my late, dear friend, Al Pinder, who I sat next to for ten years at the Foreign Correspondents of Japan in Tokyo, pounding away on antiquated Royal typewriters until our shoulders were as stiff as boards. Al then was the shipping correspondent for the New York Journal of Commerce newspaper.

Al was a colorful character, to say the least.

In the run up to WWII, Al took an extended vacation in Japan where he toured and photographed the country’s beaches, looking for the best landing sites for the US military in case war broke out.

To sneak the top-secret pictures out of the country, he bought a large steamer trunk and placed them a false bottom. Then he went to Tokyo’s red-light district in Yoshiwara, bought a dubious sex toy, an inflatable life-sized Japanese doll, and placed it on top.

When the trunk was searched, the customs officials found the doll, had a good laugh and passed him on. Al’s photos were the basis of Operation Olympic, the 1945 US invasion of Japan, made unnecessary by the dropping of the atomic bomb.

When the war broke out, Pinder parachuted into western China, where he acted as the liaison with Mao Zedong’s guerilla forces in Hunan province. In 1944, Al received a coded message from headquarters ordering him to intercept a top-secret airdrop from a DC3 in the middle of the night.

Knowing he would be mercilessly tortured by the Japanese if caught, he set up three signal fires in a triangle in a remote part of the desert and managed to find the parachute. Dodging enemy patrols all the way, he returned to his hideout in a mountain cave and opened the package.

In it was a letter from the IRS asking why he had not filed a tax return for the past three years.

I told this story at Al’s wake a few years ago and everyone had a good laugh. Al went on to run CIA operations in Japan during the fifties and sixties. When he passed away, there was a frantic search for a safe deposit box by American intelligence officials containing records of all CIA payoffs to Japan’s leading conservative party.

When the box was finally found, there was an enormous sigh of relief at the embassy. I still miss Al.

Stay healthy.

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

March 22, 2021

Diary, Newsletter, Summary

Global Market Comments
March 22, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or ENTERING TERRA INCOGNITA),
(TLT), (TSLA), (JPM), (VIX), (QQQ), (IWM), (BAC), (C), (SPY)

The Market Outlook for the Week Ahead, or Entering Terra Incognita

Diary, Newsletter

During the Middle Ages, when explorers sought new lands and their rich treasures, large sections of their navigational charts were marked with the term “terra incognita.”

That meant what lays beyond was unknown and that they should enter only at their own risk. Often there was a picture of a dragon or a sea monster to mark the spot.

There was also often a warning that you might even sail off of the edge of the earth.

Financial markets have entered a “terra incognita” of their own recently.

Here is the big unknown: How high can ten-year US Treasury bond yields soar when the Federal Reserve is promising to keep overnight interest pegged at 25 basis points until 2024 in the face of essentially unlimited monetary and fiscal stimulus?

So far, the answer is: more.

That is a really big question because we’ve never really been here before.

In fact, some Cassandras from the right are even predicting such a policy will cause us to sail off of the edge of the earth. The modern-day equivalent of running into dragons is inviting runaway inflation.

I can tell you from my own vast, almost immeasurable navigational experience (I am licensed by the US government) that “terra incognita” does not invite inordinate risk-taking or betting of ranches by traders or investors. Instead, they tend to sit on their hands, work on their golf swing, or update their Facebook pages.

That is what the Volatility Index (VIX) last week is essentially screaming at us by touching the $19 handle for the first time in a year.

Almost everyone I know has made more money in the markets than at any time in their lives. That is what a near doubling of the stock market in a year gets you.

And the new wealth was not attained because their intelligence and market insight have suddenly doubled, although a strong case for such can be made for readers of Mad Hedge Fund Trader.

So I used the Friday, March 19 option expiration to go into a rare 100% cash position. I really have gotten away with too much lately.

Then feeling guilty, I slapped on a single long in Tesla (TSLA), that old reliable money-maker. It’s worked for me since it was $3.50 a share. After all, a gigantic green energy infrastructure bill is about to pass in Congress. What better to own than the world’s largest EV car maker.

And what a tear it has been.

After bringing in a ballistic 66.64% profit in 2020, I reeled in another 40.38% gain in the first 2 ½ months of 2021. I did this via 40 trades which generated 38 wins and only two losses. That’s a success rate of an incredible 95%. I have to pinch myself when I read these numbers.

I am concerned because numbers any higher than this will look fake. It’s a rule of thumb in the investment business that when managers claim a 100% success rate, they are either high-frequency traders back by super-fast mainframe computers or running a scam.

So, I have been advising clients to pare back their biggest positions that became massively overweight purely through capital appreciation. Financials come to mind. JP Morgan (JPM) up 81% in three months? Sounds like a Ponzi Scheme.

So let me give you some upside targets in the bond market. We doubled bottomed in 2012 and 2016 at a 1.37% yield in the ten-year Treasury bond yield. We have already surpassed that level like a hot knife through butter.

At the depths of the 2008-2009 Great Recession, rates bottomed at 2.0% yield, which now seems within easy reach. The lowest yield we saw after the 2003 Dotcom Crash was a 3.0%.

When the upside targets in interest rates in this cycle are the lows of the previous economic cycles, that augurs pretty well for the future of stock prices. That is the guaranteed outcome of the tidal wave of cash now sweeping the global financial system.

The permabears are warning that the “Roaring Twenties” have already happened. I argued that they are only just getting started and that the indexes have another 4X of upside in them over the rest of the decade. When the last “Roaring Twenties” occurred, you didn’t sell in 1921.

It also reminds me of the huge “rip your face off” rally we saw from March 2009 to 2010. A lot of market gurus said then that was the peak. They were wrong. Today, they are driving for Uber and Lyft.

So when a talking head warns you that higher interest rates will cause the stock market to crash, just turn off the boob tube and go back to practicing your golf swing.

The Mad Hedge Summit Videos are Up, from the March 9,10, and 11 confab. Listen to 27 speakers opine on the best strategies, tactics, and instruments to use in these volatile markets. The product discounts offered last week are still valid. Start, stop, and pause the videos at your leisure. Best of all, access to the videos is FREE. Access them all by clicking here at www.madhedge.com, click on CURRENT SUMMIT REPLAYS in the upper right-hand corner, and then choose the speaker of your choice.

Ten Year Bond Yields (TLT) soar to a 1.75%, setting financials on fire and demolishing tech (QQQ). We are rapidly approaching a 2.00% yield, which could trigger a huge round of profit-taking on bond shorts, a domestic stock selloff, and a tech rally. The next great rotation may be just ahead of us.

Oil (USO) dives 8% on fears of an imminent Saudi production increase and a worsening Covid-19 outlook in Europe. Are we next with all these early reopening’s? Gone 100% cash at the close with the March quadruple witching option expiration.

A Tax Hike is next on the menu. Corporate tax rates are returning from 21% to 28% for the small proportion of companies that actually PAY tax. Raising taxes on earnings of more than $400,000. Pass through entities to get a haircut. Increasing estate taxes. You better die soon if you want your kids to stay rich. Increase in capital gains taxes over $1 million. I want my SALT deduction back! The grand negotiation begins on who needs bridges, rail lines, and subway extensions. Hint: for some reason, there have been no new federal projects started in California for the past four years and all the existing ones were cut back.

Value Stocks (IWM) are beating growth ones, reversing a decade-long trend. The Russell Value Index is up 11% this year, while growth is unchanged. It’s a total flip from last year when growth was tech-led. This could continue for years, or until the tech becomes the new value stocks. Big winners include Boeing (BA), JP Morgan (JPM), and Morgan Stanley (MS), all Mad Hedge moneymakers.

Bitcoin tops 61,000. Nothing else to say but that because there are no fundamentals. It’s up 80% in 2021 and 540% YOY. But it is becoming a good risk-taking indicator thought, and right now it is shouting a loud and clear “Risk On.”

It’s going to be All About Stock Picking for the Rest of 2021, says Morgan Stanley strategist Mike Wilson. Dragging on the index from here on will be the prospects of rising rates, tax hikes, and inflation. Mike especially dislikes small caps (IWM) which have already had a terrific run, with a 19% YTD gain. Stock picking? Boy, did you come to the right place!

Fed to hold off on rates hikes through 2023, said Governor Jay Powell after the open Market Committee Meeting. Bonds rallied a full half-point on the news and then crashed again, taking yields to a new 1.70% high. It sees inflation reaching a positively stratospheric 2.0% sometime this year, after which it will die, so nothing to do here. This is what a 100% dovish FOMC gets you. Let the games begin!

New Housing Starts Collapse, from an expected +2.5% to -10.3%, as high lumber, land, labor, and interest rates take their toll. This will only drive new home prices high at a faster rate and the little remaining supply dries up. Millennials need some place to live.

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!

It’s amazing how well patience can help your performance. My Mad Hedge Global Trading Dispatch profit reached a super-hot 16.89% during the first half of March on the heels of a spectacular 13.28% profit in February.

It was a tough week in the market, so I held fire and ran my seven remaining profitable positions into the March 19 options expiration. I took advantage of a meltdown in Tesla (TSLA) shares to put on my only new position of the week with a very deep-in-the-money long. That leaves me with 90% cash and a barrel full of dry powder.

This is my fifth double-digit month in a row. My 2021 year-to-date performance soared to 40.38%. The Dow Average is up a miniscule 7.7% so far in 2021.

That brings my 11-year total return to 462.93%, some 2.12 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 41.14%.

My trailing one-year return exploded to 121.60%, the highest in the 13-year history of the Mad Hedge Fund Trader. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.

We need to keep an eye on the number of US Coronavirus cases at 29.8 million and deaths topping 542,000, which you can find here. Thankfully, death rates have slowed dramatically, but Obituaries are still the largest sector in the newspaper.

The coming week will be a boring one on the data front.

On Monday, March 22, at 9:00 AM, Existing Home Sales for February are released.

On Tuesday, March 23, at 9:00 AM, New Home Sales are published.

On Wednesday, March 24 at 8:30 AM, we learn US Durable Goods for February are printed.

On Thursday, March 25 at 8:30 AM, Weekly Jobless Claims are out. We also get the final read of US Q4 GDP.

On Friday, March 26 at 8:30 AM, US Personal Income & Spending for February are released. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, I have been doing a lot of high altitude winter mountain climbing lately, and with the warm spring weather, the risk of avalanches is ever present. It takes me back to the American Bicentennial Everest Expedition, which I joined in 1976.

It was led by my old friend, instructor, and climbing mentor Jim Whitaker, who pulled an ice ax out of my nose on Mt. Rainer in 1967 (you can still see the scar). Jim was the first American to summit the world’s highest mountain. I tried to break a high-speed fall and an ice ax kicked back and hit me square in the face. If I hadn’t been wearing goggles I would have been blinded.

I made it up to 22,000 feet on Everest, to Base Camp II without oxygen because there were only a limited number of canisters reserved for those planning to summit. At that altitude, you take two steps, and then break to catch your breath.

There is a surreal thing about that trip that I remember. One day, a block of ice the size of a skyscraper shifted on the Khumbu Ice Fall and out of the bottom popped a body. It was a man who went missing on the 1962 American expedition. Everyone recognized him as he hadn’t aged a day in 15 years, since he was frozen solid.

I boiled my drinking water, but at that altitude, water can’t get hot enough to purify it. So I walked 100 miles back to Katmandu with amoebic dysentery. By the time I got there, I’d lost 50 pounds, taking my weight to 120 pounds.

Jim was an Eagle Scout, the first full-time employee of Recreational Equipment Inc. (REI), and last climbed Everest when he was 61. Today, he is 92 and lives in Seattle, WA.

Jim reaffirms my belief that daily mountain climbing is a great life extension strategy, if not an aphrodisiac.

Stay healthy.

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

March 19, 2021

Diary, Newsletter, Summary

Global Market Comments
March 19, 2021
Fiat Lux

Featured Trade:

(MARCH 17 BIWEEKLY STRATEGY WEBINAR Q&A),
(JPM), (TLT), (TBT), (SQ), (MMM), (SIL), (QQQ), (WMP), (CCIV), (TSLA), (USO), (CRSP), (PLTR), (HYG), (FCX), (XME)