Global Market Comments
November 14, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TOP FIVE TECHNOLOGY STOCKS OF 2023),
(RIVN), (ROM), (ARKK), (PANW), (CRM), (FXE), (FXY), (FXA), (LEN), (KBH), (DHI), (TLT), (UUP), (META), (TSLA), (BA), (JNK), (HYG), (BRKB), (USO)
The year 2022 has been driven by rising interest rates, a strong dollar, a weak economy, a bear market in stocks.
A massive reversal is about to take place. 2023 will gain the benefit of gale force macroeconomic tailwinds for the right stocks.
So far this year, Mad Hedge earned an astounding 77.20% profit cashing in on this year’s trends. We could earn the same return taking advantage of next year’s trends.
If you want to ride along on my coattails next year, that is fine with me. But it requires you to take a leap of faith.
I refer you to the motto of Britain’s Special Air Service: “Qui audet adipiscitur,” or “Who dares wins.”
For it only makes sense that the worst stocks of 2022 will be the best performers of 2023.
I have no doubt that tech stocks will bottom out sometime in 2023. Those who get in early will build some of the largest fortunes of this century. Those who miss the boat will spend their retirement years working at Taco Bell.
The reasons are very simple.
*Ultra-high interest rates will force a mild recession in early 2023. Then suddenly, inflation will plummet. We know this has already started because the largest element in the inflation calculation is housing costs, which are in free fall.
*The Fed will panic and deliver 2023 the sharpest DECLINE in interest rates in American history.
*Plunging interest rates will bring a crash in the US dollar.
*Foreign currencies like the Euro (FXE), the Japanese Yen (FXY), and the Australian dollar (FXA) will soar.
*And guess who gets the bulk of their earnings from abroad, sometimes up to two-thirds? The technology industry.
Kaching!
If you think I’m out of my mind, just look at the top performers of the historic stock market rally last week.
All the interest rate-sensitive sectors caught on fire. Technology stocks took off like a scalded cat, with Cathie Woods’ Ark Innovation Fund (ARKK) up an astounding 14% in a single day.
Bank shares soared. Homebuilders (LEN), (KBH), (DHI) caught a strong bid for the first time in ages. Junk bonds went bid only. US Treasury Bonds had their best day in 20 years (TLT), while the greenback (UUP) had its worst.
The bottom line here is so clear that I’ll write it on a wall for you. Falling interest rates will be the primary driver of stock prices for 2023 and 2024.
Of course, there is a better way to play this than buying the first technology index you stumble across.
So, let me boil this strategy down to just five names, close your eyes, and buy them.
Rivian (RIVN) – ($34) - Rivian is widely believed to be the next Tesla (TSLA). Some 25% owned by its largest customer, Amazon (AMZN), Rivian produces three types of EVs: the R1T pickup truck, the R1S SUV, and Amazon's EDV (electric delivery van). Its R1 vehicles start at under $70,000 and can travel more than 300 miles on a single charge. To learn more about Rivian, please click here.
To say that Rivian is the hot car of the day would be a vast understatement. New cars are trading for double list on the grey market. Owners complain of getting mobbed with gawkers whenever they hit the beach or the ski slopes. The buzz has led to an outstanding order book of an impressive 98,000, or four years of current production. The obvious cool factor allows enormous pricing power.
And here is the key to buying Rivian at this time. At 25,000, it is right at the mass production point where Tesla shares went ballistic all those years ago. And it already has an 80% decline in the price, in the rear-view mirror.
In 2024, Rivian plans to open its second plant in Georgia. After it fully expands its Illinois plant, it expects its annual production capacity to reach 600,000 vehicles.
Inflation Reduction Act passed this summer greatly accelerated rollout of the entire EV industry, which created a $7,500 per vehicle tax credit on top of state benefits.
Yes, this company offers venture capital-type risks. But it offers venture capital-type returns as well, up 10X-50X from here.
Ark Innovation Fund (ARKK) – ($40) – Cathie Woods’ high-tech fund was the proverbial red-headed stepchild of this bear market. It fell a gut-punching 80% from the 2021 top until last week. Just to get back to its old high, likely over the next five years, it has to rise by 400%. Its largest holdings are a real rollcall of the severely abused, Tesla (TSLA), Roku (ROKU), Exact Sciences (EXAS), Intellia (INTL), and Teladoc Health (TDOC), which Woods actively trades. But they are also a valuable insight into the future, EVs, CRISPR technology, robotic surgery, and molecular diagnostics. To learn more about the Ark Innovation Fund, please click here.
ProShares Ultra Technology ETF (ROM) – ($27) – This is a 2X long technology ETF that gives you an extremely aggressive position across the tech sector. It has 19% of its holdings in Apple (AAPL), 16% in Microsoft (MSFT), 10% in Alphabet (GOOGL) and Google (GOOG), at 3.5% in NVIDIA (NVDA), and 120 other smaller names. (ROM) shares are down a breathtaking 67% just in the past year. To learn more about the (ROM), please click here.
Palo Alto Networks (PANW) - $165 – Hacking is one of the fastest-growing sectors in technology, it is recession-proof and immune to the economic cycle. As a result, spending on the defense against hacking is absolutely exploding. Palo Alto Networks, Inc. is an American multinational cybersecurity company with headquarters in Santa Clara, California. Its core products are a platform that includes advanced firewalls and cloud-based offerings that extend those firewalls to cover other aspects of security. I have already earned a tenfold return over the past decade and expect to make another 10X in the coming years. You won’t find any dips in this stock as too many people are trying to get into it. To learn more about the Palo Alto Networks, please click here.
Salesforce (CRM) - $157 – The baby of tech genius Mark Benioff, this company is the dominant player in customer relationship management. If you want to do any business in the cloud, and almost all big companies do, you are up to your eyeballs in customer relationship management. Salesforce is the largest San Francisco-based cloud-oriented software company with virtually all of the Fortune 500 as its customer list. It provides customer relationship management software and applications focused on sales, customer service, marketing automation, analytics, and application development. Salesforce shares have been the target of a haymaker, down 55% in a year. To learn more about Salesforce, please click here.
You know what? I can do better than this.
I can create customized options LEAPS for you that will deliver a tenfold return on whatever performance these ultra-high beta stocks deliver. If the shares of one of my picks rise by 100%, you will make 1,000%.
This is an investment strategy that will enable you to retire early, real early. Tired of punching a time clock or logging into the next Zoom meeting on time?
Those will become a distant memory if you pursue my Mad Hedge Investment strategy for 2023.
As a result, my November month-to-date performance went off to the races, already achieving a hot +2.20%.
That leaves me with a very rare 100% cash position. With midterm election results out on Wednesday and the next report on the Consumer Price Index on Thursday, that sounds like a prudent place to be.
My 2022 year-to-date performance ballooned to +77.57%, a new high. The Dow Average is down -11.85% so far in 2022.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +75.53%.
That brings my 14-year total return to +590.13%, some 2.86 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +49.51%, easily the highest in the industry.
Bonds Clock Best Day in Years, taking the ten-year US Treasury bond fund up $3.64. All low interest rate plays had monster days. Junk bond ETFs (JNK) and (HYG) were up two points. 30-year fixed rate mortgages dropped 60 basis points to 6.60%, the biggest drop in history. Long bonds will be THE big trade of 2023.
US Dollar has Worst Day in 20 Years, driven by plunging interest rates. Big tech, which gets a major share from overseas sales, rocketed. Apple alone was up $12. Cathy Wood’s Ark Innovation Fund (ARKK) was up an incredible 14%. It vindicates my view that tech will turn when interest rates and the dollar fall.
Oil Companies (USO) Book Record $200 Million Profit this year, using the Ukraine War to double your cost of gasoline. If we have a recession next year, or the war ends, energy share prices should be peaking around here. Even if they don’t, the risk-reward here is terrible. It means we will have to pay a much higher price to decarbonize the economy at a later date.
Wells Fargo Gets Hit with $1 Billion Fine for its many regulatory transgressions over the last decade. Looting of customer accounts with bogus fees has been a recurring problem. Use any selloffs to buy (WFC) on dips.
Berkshire Hathaway's 20% Profit Increase YOY and buys back another $1 billion worth of stock. However, they did take a $10 billion loss on stocks in Q3 during the market meltdown. Keep buying (BRKB) stock and LEAPS on dips.
$1.5 trillion in Homeowners Equity Lost Since May, thanks to interest rates at 20-year high and a shrinking money supply. Since July, the median home price has dropped by $11,560. The average borrower has lost $30,000 in equity. It’s not a great time to rent either as prices there are soaring. Residential housing could remain weak for another 12-24 months, compared to the six-year drawdown we had from 2006.
Boeing Orders Rise in October, but deliveries fall. The company is finally out of the penalty box, up 40% since October 1. Don’t buy (BA) up here.
The Red Wave Fails to Show, with control of congress still too close to call. Republican House control has shrunk from an expected 60 seats six months ago to maybe two today. Donald Trump threw the election for his party, picking unelectable extremist candidates and campaigning where he wasn’t wanted. A pro-life Supreme Court brought out millions of women voters across the country. If the Republicans can’t win with inflation at 8.7%, they are toast in 2024 when it drops back down to 2%.
Market Dives 646 Points on Democratic Win, with technology stocks taking the biggest hit. The red wave no-show was a black swan traders were not looking for. Energy was the worst performing sector because they aren’t getting the air cover they paid for with a red wave. The result was much as I expected, which is why I went into November 8 with a rare 100% cash position waiting to buy the next low. It turns out that rights are more important than prices.
Elon Musk Sells More Tesla Shares and Warns of a Twitter Bankruptcy, some $3.9 billion worth, bringing this year’s total to $36 billion. Musk is raising money to head off a bankruptcy of Twitter now that major advertisers are fleeing en masse. This certainly is a distress sale. If Musk was looking to build a real business, re-tweeting fringe conspiracy theories was the worst thing he could have done. Endorsing the Republican party will cost him half of his customers. Is this Musk’s Waterloo, or his Dien Bien Phu?
Facebook to Lay Off 11,000, about 13% of its total employees. Zuckerberg admits the error of pushing the company into the metaverse too far too fast. With the stock down 77%, there are not a lot of happy campers at One Hacker Way. Avoid (META) for now, but it may be a 2023 play when we get closer to a new final product.
FTX Becomes an Epic Bankruptcy, with $9.5 billion missing from its balance sheet, in one of the biggest blowups of the crypto age. Losses are expected to reach $50-$60 billion, with the bankruptcy of 130 affiliated companies. It is also a potential Dept of Justice target. All affiliated tokens and coins have gone to zero. So, placing your money with a fresh-faced kid in the Bahamas wearing baggy shorts and with no financial background was not such a great idea after all. It’s amazing how many serious people were sucked in on this one. At least Sam Bankman-Fried said he was sorry.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With the economy decarbonizing and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
On Monday, November 14 at 8:00 AM, the Consumer Inflation Expectations for October are released.
On Tuesday, November 15 at 8:30 AM, the Producer Price Index for October is released.
On Wednesday, November 16 at 8:30 AM, Retail Sales for October are published.
On Thursday, November 17 at 8:30 AM, Weekly Jobless Claims are announced. Housing Starts and Permits for October are also out.
On Friday, November 18 at 10:00 AM, the Housing Starts for October are printed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, I am often told that I am the most interesting man people ever met, sometimes daily. I had the good fortune to know someone far more interesting than myself.
When I was 14, I decided to start earning merit badges if I was ever going to become an Eagle Scout. I decided to start with an easy one, Reading Merit Badge, where you only had to read four books and write one review.
I was directed to Kent Cullers, a high school kid who had been blind since birth. During the late 1940s, the medical community thought it would be a great idea to give newborns pure oxygen. It was months before it was discovered that the procedure caused the clouding of corneas and total blindness. Kent was one of these kids.
It turned out that everyone in the troop already had Reading Merit Badge and that Kent had exhausted our supply of readers. Fresh meat was needed.
So, I rode my bicycle over to Kent’s house and started reading. It was all science fiction. America’s Space Program had ignited a science fiction boom and writers like Isaac Asimov, Jules Verne, Arthur C. Clark, and H.G. Welles were in huge demand. Star Trek came out the following year, in 1966. That was the year I became an Eagle Scout.
It only took a week for me to blow through the first four books. In the end, I read hundreds to Kent. Kent didn’t just listen to me read. He explained the implications of what I was reading (got to watch out for those non-carbon-based life forms).
Having listened to thousands of books on the subject, Kent gave me a first class education and I credit him with moving me towards a career in science. Kent is also the reason why I got an 800 SAT score in math.
When we got tired of reading, we played around with Kent’s radio. His dad was a physicist and had bought him a state-of-the-art high-powered short-wave radio. I always found Kent’s house from the 50-foot-tall radio antenna.
That led to another merit badge, one for Radio, where I had to transmit in Morse Code at five words a minute. Kent could do 50. On the badge below the Morse Code says “BSA.” In those days, when you made a new contact, you traded addresses and sent each other postcards.
Kent had postcards with colorful call signs from more than 100 countries plastered all over his wall. One of our regular correspondents was the president of the Palo Alto High School Radio Club, Steve Wozniak, who later went on to co-found Apple (AAPL) with Steve Jobs.
It was a sad day in 1999 when the US Navy retired Morse Code and replaced it with satellites. However, it is still used as beacon identifiers at US airfields.
Kent’s great ambition was to become an astronomer. I asked how he would become an astronomer when he couldn’t see anything. He responded that Galileo, the inventor of the telescope, was blind in his later years.
I replied, “good point”.
Kent went on to get a PhD in Physics from UC Berkely, no mean accomplishment. He lobbied heavily for the creation of SETI, or the Search for Extra Terrestrial Intelligence, once an arm of NASA. He became its first director in 1985 and worked there for 20 years.
In the 1987 movie Contact written by Carl Sagan and starring Jodie Foster, Kent’s character is played by Matthew McConaughey. The movie was filmed at the Very Large Array in western New Mexico. The algorithms Kent developed there are still in widespread use today.
Out here in the west aliens are a big deal, ever since that weather balloon crashed in Roswell, New Mexico in 1947. In fact, it was a spy balloon meant to overfly and photograph Russia, but it blew back on the US, thus its top secret status.
When people learn I used to work at Area 51, I am constantly asked if I have seen any spaceships. The road there, Nevada State Route 375, is called the Extra Terrestrial Highway. Who says we don’t have a sense of humor in Nevada?
After devoting his entire life to searching, Kent gave me the inside story on searching for aliens. We will never meet them but we will talk to them. That’s because the acceleration needed to get to a high enough speed to reach outer space would tear apart a human body. On the other hand, radio waves travel effortlessly at the speed of light.
Sadly, Kent passed away in 2021 at the age of 72. Kent, ever the optimist, had his body cryogenically frozen in Hawaii where he will remain until the technology evolves to wake him up. Minor planet 35056 Cullers is named in his honor.
There are no movies being made about my life…. yet. But there are a couple of scripts out there under development.
Watch this space.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 24, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or MY SECRET MARKET INDICATOR),
(SPY), (USO), (TSLA), (TBT), (NFLX), (FXY), (SNAP)
I have access to inside information that is worth far more than any other technical or fundamental data out there.
It is almost always right and has made fortunes for me over the year, the dreams of avarice.
If the SEC knew about it, they would lock me up and throw away the key.
Here it is. But first, let me tell you about the performance it has delivered.
With some of the greatest market volatility in market history, my October month-to-date performance ballooned to +6.55%.
I used last week’s option expiration to take profits on my longs in JP Morgan (JPM), Visa (V), and Tesla (TSLA), and my one short in the S&P 500 (SPY). That leaves me with only one short in the (SPY) and 90% cash.
My 2022 year-to-date performance ballooned to +76.23%, a new high. The Dow Average is down -14.37% so far in 2022.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +76.50%.
That brings my 14-year total return to +586.79%, some 2.86 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.72%, easily the highest in the industry.
So here is my unfair advantage:
I get to see what my own customers do, and I’m the only one who sees it.
For my own subscribers are among the most highly trained and disciplined in the market. 50% a year profits are common and every year, I learn of a couple of 1,000% profits (or 10X returns).
And here is what my customers are telling me today.
The end of the bear market is near. In fact, a “Big Turn” across all asset classes may be upon us.
Bonds are about to bottom out and yields peak. The US dollar may be double-topping. Commodities are crawling off a bottom. Price earnings multiples for stocked have just cratered from 21X to a decade low of 16X. Many stocks, like Tesla are trading at the lowest multiples in their lives.
Thus, the demand for LEAPS recommendations that offer tenfold two-year returns on far more modest equity appreciation has been skyrocketing.
I can’t blame them.
A final capitulation in the bond market is fast approaching. The United States Treasury Bond Fund (TLT) has collapsed by $88, from $180 to $92, or some 48.89%, covering the last six points in two days.
Ten-year yields have rocketed from 2.55% to 4.43% since August. The 2X short bond ETF (TBT) has spiked from $14 to $39 in a year. If you don’t cover the bond market on a daily basis, you may not know this.
It just so happens that I do.
It's an old investment nostrum that if you want to know what stocks are going to do, then take a close look at the bond market.
As Winston Churchill once said, “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
If you believe that the last interest rate hike in this cycle is only two months off, and we see interest rate cuts after that, then you need to be buying stocks now. You may be risking 10% of downside if you do, but miss out on 100% of upside if you don’t.
Here's another market old reliable. Markets always move more than you expect.
These may all sound like bold predictions. But then my followers are coming off of the best year for trading and investment in their entire lives. Confidence begets confidence.
If you are searching for global contagion, you don’t have far to look. The Japanese yen has cratered some 24% this year and is down by half from its last peak. That’s because the Bank of Japan, one of my old haunts, remains stubbornly insistent that ten-year JBG yields remain pegged at 0.25% while the US was raising from 0.25% to 4.43%.
You have to wonder what they are smoking in the Land of the Rising Sun. Their goal was to create a massive export boom with an ultra-cheap currency and runaway inflation with all the money printing. So far it hasn’t happened. GDP growth in Japan is stuck at snail-like 1.7%, while inflation remains a lowly 3.00%.
Go to Japan for the sushi, the public baths, and the Kurosawa samurai movies, not for inspiration on economic policy, which has been a disaster for 45 years. It’s tough to prosper against a gail-force demographic headwind.
Foreign exchange markets are easy to trade. You just follow the money and pile into the currency with the best yield advantage. Right now, that happens to be the US dollar (UUP).
Why wasn’t I selling short the Japanese yen (FXY) earlier this year? Because there were far better opportunities selling short US stocks, which I amply took advantage of.
It’s all in my numbers.
UK Government Collapses, with the resignation of prime minister Liz Truss in the shortest government in history. A new conservative leader will be elected next week. Truss took over a sinking ship. Her promised tax cuts delivered a fall in the British pound to a 40-year low. No matter what any future leader does, the UK standard will drop by half in the coming years, thanks to Brexit. THE HEAD OF LETTUCE WON!
30-Year Fixed Rate Mortgage Hits an Eye-popping 7.4%, in a clear Fed effort to shut down the real estate market. If this doesn’t kill the economy, nothing will. But home prices are nowhere near to 50%-70% declines seen in 20098-2011.
Existing Home Sales Plunge 23.8% YOY, in September, in the eighth straight month of sales declines. There are 1.2 million homes for sale, a six-month supply. The median home prices rose to $384,800.
Housing Starts Hit Two-Year Low, as the luxury end takes a hit. Starting families can no longer buy more houses than they can afford.
US Budget Deficit Drops by Half, after the sharpest decline in government spending in history. The red ink shrank from $2.78 trillion to only $1.38 trillion. It’s why I think the bond market may soon be bottoming out, with the (TLT) at $92 and the (TBT) at $38. A trillion here, a trillion there, and sooner or later, it adds up to a lot of money.
Ten-Year US Treasury Yields Hit 20-Year High, at 4.43%. If you’re waiting for rates to peak before buying stocks, it’s not yet. I’m looking for 4.50% before the crying is all over.
Fed Beige Book Says the Economy is Growing Modestly, an improvement from the last one. Travel & tourism is booming, auto sales are sluggish, and retail spending is flat. Manufacturing is steady, thanks to easing supply chain problems. High mortgage rates are a problem. Labor is still tight. It’s a very mixed report.
Tesla Earnings Beat Estimates for the 13th consecutive quarter profitability, taking the shares down 5%. Revenues came in at 24 billion, while units sold hot 340,000. The strong dollar is weakening Chinese and European sales. Tesla is still a decade ahead of the competition and boasts a global footprint. Production could hit 450,000-500,000 in Q4 once Austin and Berlin go to full production. The only competition will come from China. The Cybertruck comes out in 2023 and already has a million orders.
Netflix Earnings Blow Out, taking the stock up 15%, after a massive crackdown on password sharing. Some 30 million views are still watching the streaming channel for free. Some 2.41 new subscribers joined in Q3. The shift to advertising is next. Buy (NFLX) on dips.
SNAP Dives by 25%, thanks to a horrific earnings shortfall. Advertising Demand went from overwhelming to non-existent practically overnight. Small-cap growth is still being punished severely for any disappointments. The company is cutting 20% of its staff. Avoid (SNAP).
Supply Chain Problems are Disappearing, as two years of port congestion ease. A slowing economy is helping. After a year, I finally got my sofa from Vietnam. Overorders are coming back to haunt big retailers.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With the economy decarbonizing and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
On Monday, October 24 at 8:30 AM, the S&P Global Flash PMI for September is released.
On Tuesday, October 25 at 7:00 AM, the S & P Case Shiller National Home Price Index for July is out.
On Wednesday, October 26 at 8:30 AM, New Home Sales for September are published.
On Thursday, October 27 at 8:30 AM, Weekly Jobless Claims are announced. US Q3 GDP is also announced.
On Friday, October 28 at 8:30 AM US Personal Income & Spending is printed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, back in 2002, I flew to Iceland to do some research on the country’s national DNA sequencing program called deCode, which analyzed the genetic material of everyone in that tiny nation of 250,000. It was the boldest project yet in the field and had already led to several breakthrough discoveries.
Let me start by telling you the downside of visiting Iceland. In the country that has produced three Miss Universes over the last 50 years, suddenly you are the ugliest guy in the country. Because guess what? The men are beautiful as well, the decedents of Vikings who became stranded here after they cut down all the forests on the island for firewood, leaving nothing with which to build long boats. I said they were beautiful, not smart.
Still, just looking is free and highly rewarding.
While I was there, I thought it would be fun to trek across Iceland from North to South in the spirit of Shackleton, Scott, and Amundsen. I went alone because after all, how many people do you know who want to trek across Iceland? Besides, it was only 150 miles, or ten days to cross. A piece of cake really.
Near the trailhead, the scenery could have been a scene from Lord of the Rings, with undulating green hills, craggy rock formations, and miniature Icelandic ponies galloping in herds. It was nature in its most raw and pristine form. It was all breathtaking.
Most of the central part of Iceland is covered by a gigantic glacier over which a rough trail is marked by stakes planted in the snow every hundred meters. The problem arises when fog or blizzards set in, obscuring the next stake, making it too easy to get lost. Then you risk walking into a fumarole, a vent from the volcano under the ice always covered by boiling water. About ten people a year die this way.
My strategy in avoiding this cruel fate was very simple. Walk 50 meters. If I could see the next stake, I proceeded. If I couldn’t, I pitched my tent and waited until the storm passed.
It worked.
Every 10 kilometers stood a stone rescue hut with a propane stove for adventurers caught out in storms. I thought they were for wimps but always camped nearby for the company.
One of the challenges in trekking near the north Pole is getting to sleep. That because the sun never sets and its daylight all night long. The problem was easily solved with the blind fold that came with my Icelandic Air first class seat.
I was 100 miles into my trek, approached my hut for the night and opened the door to say hello to my new friends.
What I saw horrified me.
Inside was an entire German Girl Scout Troop spread out in their sleeping bags all with a particularly virulent case of the flu. In the middle was a girl lying on the floor soaking wet and shivering, who had fallen into a glacier-fed river. She was clearly dying of hypothermia.
I was pissed and instantly went into Marine Corp Captain mode, barking out orders left and right. Fortunately, my German was still pretty good then, so I instructed every girl to get out of their sleeping bags and pile them on top of the freezing scout. I then told them to strip the girl of her wet clothes and reclothe her with dry replacements. They could have their bags back when she got warm. The great thing about Germans is that they are really good at following orders.
Next, I turned the stove burners up high to generate some heat. Then I rifled through backpacks and cooked up what food I could find, force-fed it into the scouts, and emptied my bottle of aspirin. For the adult leader, a woman in her thirties who was practically unconscious, I parted with my emergency supply of Jack Daniels.
By the next morning, the frozen girl was warm, the rest were recovering, and the leader was conscious. They thanked me profusely. I told them I was an American “Adler Scout” (Eagle Scout) and was just doing my job.
One of the girls cautiously moved forward and presented me with a small doll dressed in a traditional German Dirndl which she said was her good luck charm. Since I was her good luck, I should have it. It was the girl who was freezing to death the day before.
Some 20 years later, I look back fondly on that trip and would love to do it again.
Anyone want to go to Iceland?
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Iceland 2001 with German Girl Scout
Global Market Comments
October 21, 2022
Fiat Lux
Featured Trade:
(OCTOBER 19 BIWEEKLY STRATEGY WEBINAR Q&A),
(BAC), (USO), (SPY), (TSLA), (NFLX), (TBT), (PLTR), (SNOW)
Below please find subscribers’ Q&A for the October 21 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: Bank of America (BAC) said the US consumer is strong and lending is robust. Does this mean no recession in 2023?
A: It could, because remember that while some sectors are clearly in recession, like real estate and automakers, and have been for a while, others are absolutely booming, like the airline business, and the banking business. There may not be a recession in here, or if there is one, it’s a very slight one. Count on the market to first discount a severe recession which would take the S&P 500 down to $3,000-$3,200 or so; and that’s what markets do, always overly pessimistic at the bottom and overly euphoric at tops. You can make your living off of this.
Q: What do you think about OPEC's behavior (USO) and its influence on the price of oil?
A: Clearly, they’re trying to influence the midterm elections and get an all-republican pro-oil Congress, which will be nicer to OPEC. That’s certainly what they got with the last administration and it’s safe to say that the pro-climate administration of Biden and the Saudis get along like oil and water. But long term, OPEC knows it’s going to zero, and in fact, Saudi Arabia has plans to turn their entire oil supply into hydrogen which can be exported and burned cleanly. I know the team here at UC Berkeley that’s working on that with the Saudi government. Cheap hydrogen also means airships come back, how about that? Hindenburg anyone?
Q: Will draining the Strategic Petroleum Oil Reserve (SPR) backfire, meaning deflation for the US economy and administration?
A: No, the SPR outlived its usefulness maybe 30 years ago—it’s essentially a government subsidy for Texas and Louisiana, and for the oil industry, that has taken on a life of its own. When we started the SPR in 1975, the US got more than half of its oil from the Middle East. Now, it’s almost zero. It goes to China instead. If we are a net energy producer and we have been for over 5 years, why do we even need a petroleum reserve? So no, I think we should shut it down and sell all the oil that’s in there. And it becomes even less relevant as more of the US economy turns over to alternatives.
Q: How do we operate our military with no oil?
A: The pentagon is working on a no-oil future, developing alternative fuels for all kinds of things that you wouldn’t imagine are possible. For example, instead of using diesel, jet fuel, or gasoline for our vehicles, you outfit them with electric batteries, and when the batteries go dead you just air drop new fully charged ones. It’s much better than trying to transport gasoline across the desert in a giant fuel bladder, which can be taken out by a single bullet and is what they do now. Take the pilots out of fighters and they become so light they can operate on battery power. So yes, the pentagon has actually been in the forefront of using every alternative technology they can get their hands on from the early days. Better they get them first before an enemy does.
Q: We will almost always need petroleum; far too many products use it as an ingredient.
A: That is absolutely right. Some will probably never be replaced, like asphalt, feedstock, or plastic. However, those represent less than 10% of the current oil demand. So yes, there always will be an oil industry, it just might be a heck of a lot smaller than it is now. You eliminate cars from the picture, and that’s half of all oil demand in the United States right there. And in most places in the United States, it will be illegal to sell a car that uses gasoline in 12 years. And do you make 30-year investments based on demand for your product dropping by half in 12 years? No, you don’t, which is why the oil companies themselves won’t invest in their own industries anymore. They’re only paying out profits as dividends and buying back shares, which they never used to do.
Q: Do you think the Standard & Poor’s 500 Index (SPX) $3,500 was the bottom?
A: No, we actually did get a little bit lower than that. We will be in a bottoming process over the next several months, but the pattern will be the same. Tiny marginal new bottoms, maybe 100 points lower than the last, and then these gigantic rallies. If we do make bottoms they will only be for seconds, so the way to deal with that is to only put in really low-limit orders to buy stuff, assuming 1,000 points down, and just keep entering the order every day. Eventually, you’ll get one of these throw-away fills when the algorithms panic and a bunch of market orders hit the market. That's the way to deal with that.
Q: I would say that Biden is trying to influence the elections by releasing oil reserves.
A: Absolutely he is, but then so is the oil industry, taking half of the refineries off stream 2 months before the elections, and spiking oil prices. So it’s a battle of the oil price going on here. No love lost between the oil industry and Biden, and US consumers for that matter. I don’t care if gasoline is $7 a barrel because I never buy it; I am all electric. But for a lot of working people, that’s definitely a lot of money.
Q: How concerned are you about the US going to a cashless currency?
A: I’m not worried because I pay my taxes and I don’t break any laws. If you don’t pay taxes and do break laws, like engaging in drug dealing or bribery, you should be extremely worried, as that would be the eventual goal of a cashless economy. That and the fact that the government has to spend $300 million a year printing paper money, which they’d love to get rid of. And of course, it’s cheaper for businesses to use digital currencies. Most countries in Europe don’t use physical currency anymore—it’s credit cards only.
Q: Do you expect Tesla (TSLA) to pop after earnings?
A: I have no idea; it depends on what the report says but suffice it to say that Tesla is historically cheap. It has the lowest PE multiple now than it has in the entire 13-year history of the company. Scale in on the LEAPS with Tesla—that’s what I’d be doing down here.
Q: Could the US debt situation spiral into something that gets out of hand?
A: No, because the purchasing power of debt is now deflating at an 8.4% annual rate, which means that it goes to zero in about 8.57 years. This is how the government always wins when issuing debt. It’s been going on since the French first issued government debt 300 years ago. Who pays for that? Bond investors. Anybody who owns bonds now has seen their purchasing power go up in smoke. That’s why it’s been a one-way zero bid market for two and a half years—they’ve been dumping like crazy.
Q: Should I buy debt here or sell it?
A: We’re actually getting close to a bottom in the junk debt market, which means you’re going to be yielding around 10%. That means the value of your holding doubles in 6 years, and the default rates never reach the high levels predicted by analysts in junk bonds. That has always been the key to junk bonds in the whole 50 years that I've been following this market. My neighbor up in Tahoe, Mike Milliken, made billions off that assumption.
Q: What do you think about Netflix (NFLX)?
A: Well, my advice was to buy it, to a lot of people. They’re clearly changing their business model for the better—they’re going to start picking up ad revenues, they’re cracking down on password sharing, and they delivered a 20% return in stocks. Plus their share price has just dropped down from $700 to $165. Great LEAP candidate here.
Q: What kind of position is best if a recession hits?
A: Cash. Cash is now yielding 4.4%. The best cash alternative is 90-day T-bills issued by the US Treasury. Execution costs almost zero, and liquidity is essentially infinite; but, remember also that bull markets start 6 to 9 months before recessions end. You just have to watch your timing. Which means that if the recession ends in say July, you have to be buying stocks today. Just keep that in mind, ladies and gentleman.
Q: How do you see the futures of semis?
A: Anything you buy here now will triple in three years, but it becomes a question of how much pain you want to take in the meantime. Everyone in the investment management industry thinks the same, and it really is a classic “catch-a-falling-knife” situation— knowing that the payoff down the road is enormous. Virtually all companies are designing new semis into their products at an exponential rate.
Q: Are LEAPS part of the service?
A: Yes, they are. I will send you one tomorrow. But concierge customers get first priority because that’s what they’re paying for.
Q: How far out should we go?
A: On LEAPS, always take the maximum maturity, which is usually 2 years and 4 months. And the reason is that the second year is almost free—they charge you almost nothing for going out to maximum maturity. And if we have a recession that does last longer than people think, that extra year of maturity will be worth its weight in gold. It’ll be the difference between a zero return and a 10x return.
Q: Can we go back into the ProShares UltraShort 20+ Year Treasury (TBT)?
A: No, it would be a horrible idea to buy the (TBT) here after it just moved from $14 to $36. That’s what you buy before it goes from $14 to $36. We’re topping out in all of these short bond plays, so avoid them like the plague.
Q: How much is the Concierge Service?
A: It’s $12,000 a year—and a bargain price at that! Almost everybody ends up covering that on their first trade, and you get an entire portfolio of LEAPS and a dedicated LEAPS website with the service. You also get my personal cell phone number so you can call me while I'm either on the beach in Hawaii or on the ski slopes of Lake Tahoe. If anyone has questions about the concierge service, contact customer support at support@madhedgefundtrader.com.
Q: What are your thoughts on data analytics companies Snowflake (SNOW) and Palantir (PLTR)?
A: Love Snowflake, hate Palantir because the CEO isn’t interested in promoting a share price. With (SNOW), you have Warren Buffet as a major holder, so that’s all you need to know there. (SNOW) also has a 75% fall behind it.
Q: Thoughts on the Ukraine/Russia war?
A: It’ll drag on well into next year, and obviously the Iranian drones are the new factor here. I wouldn’t be surprised if there were suddenly an accident at a certain factory in Iran; that’s what happens when these things play out.
Q: Is Snowflake (SNOW) a buy right now?
A: It’s like all the rest of tech. High volatility, could have lower lows, but long-term gains are at least a triple from here. You know how much risk you can take.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Dungeon in Montreux Castle on Lake Geneva in Switzerland
Global Market Comments
October 10, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or EATING YOUR SEED CORN),
(SPY), (TLT), (PANW), BRKB), (JPM), (MS), (V),
(USO), (MU), (RIVN), (TWTR), (TSLA)
You know that 10% downside risk I talked about? In other words, you may have to eat a handful of your seed corn.
We may have to eat into some of that 10% this week. With the September Consumer Price Index out on Thursday, and the big bank earnings are out Friday, there is more than a little concern about the coming trading week.
That’s why all my remaining positions are structured to handle a 10% correction or more and still expire at their maximum profit point in nine trading days.
Even in the worst-case Armageddon scenario, which we are unlikely to get, the S&P 500 is likely to fall below 3,000, or 627.90 points or 17.25% from here.
That’s what you pay me for and that’s what you are getting.
I shot out of the gate with an impressive +3.25% gain so far in October. My 2022 year-to-date performance ballooned to +72.93%, a new high. The Dow Average is down -19.3% so far in 2022 or a gob-smacking -7,000 points. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +81.35%.
That brings my 14-year total return to +585.49%, some 3.03 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.62%, easily the highest in the industry.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
I used last week’s extreme volatility to rearrange positions, adding longs in Morgan Stanley (MS), JP Morgan (JPM), and Visa (V). That takes me to 80% long, 20% short, and 0% cash. I wisely rolled down the strikes on my Tesla position from $230-$240 to $200-$210. I covered one short in the S&P 500 (SPY). All of my options positions expire in only nine trading days.
I know that you’re probably getting boatloads of advice the sell all your stocks now, sell your house, and head for those generous 5% short term interest rates, and 8% in junk. Even I went 100% cash….in December last year. The problem is that these other gurus are giving you advice that is only a year late with perfect 20/20 hindsight.
To bail now, you risk giving up on the 100% gains in years to come. If I’m wrong, you lose 10%, if I’m right, you get a double or more. Sounds like a pretty good bet to me.
People always want to know how I pick market bottoms, something I have been doing since the Dow Average was at a miniscule $753.
The lower the market is, the less aggressive the Fed is going to be
Every single input into the Consumer Price Index is now turning down sharply, especially rents and housing costs, meaning we can expect a blockbuster decline when the next report comes out on October 13
We now have two outsiders doing the Fed’s job for it, the British economy, which is clearly collapsing, and a strong US dollar that is rapidly shrinking the foreign revenues of our multinationals, like big tech.
Capitulation indicators, occasionally spotted here and there, are now coming in volleys, the Volatility Index at $35, the (VIX) curve inversion, the RSI below 30, the ten-year US Treasury yield hit 4.0% and then instantly backed off, the British pound plunged to $1.03, and we saw absolutely massive retail selling in September.
The froth is now out of all tech stocks.
All of this brings forward the last Fed hike in interest rates and the next bull market in stocks. If the last Fed rate hike is two months away on December 14, then the reasons to sell stocks are disappearing like the last sands in an hourglass.
In my mere half century in the market, every time the CPI starts to fall, stock market “V” bottoms and begins classic “rip your face off’ rallies as the shorts panic to cover. It happened in 1970, 1974, 1980, 1990, and 2009. It will happen again in 2022. The market will smell that inflation is done, the Fed is done, and volatility becomes a distant memory.
And I hate to be so obvious, but if you sell in May, what do you do in October? You buy with both hands. Just do it on the right day. That could get you a 10% to 20% move by yearend. The S&P 500 earnings multiple has collapsed by eight points in nine months and that is too far, too fast.
How do midterm years perform? October is the best month of the year followed by November. Of the entire 16-month presidential election cycle, the coming first quarter of 2023 is the best of the entire lot.
Nonfarm Payroll Falls Short at 263.000 in September. The headline unemployment rate matched a 2022 low at 3.5%. The long-term unemployment rate, the U-6 also matched this year’s low at 6.7%. The report keeps the Fed on its current interest raising schedule. Stocks, bonds, and gold sold off 500-points.
JOLTS Drops Sharply, from an expected 11.0 million to only 10.05 million. This is the job openings report from the Department of Labor. It’s one of the sharpest declines in history. The jobs market is finally starting to deteriorate, which is just what the Fed wanted. Factory Orders for August were unchanged.
OPEC+ Cuts Quotas by 2 million, and production by 1 million, in one of the largest reductions in history. It’s an effort to maintain oil prices at current prices in the face of falling demand from a global recession. The Arabs are not your friends. It’s also a slap in the face of the anti-oil posture, pro-climate posture of the Biden administration, which responded with a further release of 10 million barrels from the Strategic Petroleum Reserve. Energy stocks soar across the board. Don’t get caught standing when the music stops playing. Avoid (USO).
Why Did Russia Blow Up Their Own Pipeline? International analysts are puzzled by Putin’s latest hostile move. Is this a prelude to limited nuclear war in Ukraine? My view is that Putin expects to be deposed soon and wants to make it difficult for the next government to resume relations with Europe. Others argue that the true motivation is to enable Nordstream to file a $10 billion insurance claim. Good luck collecting on that one.
Advanced Micro Devices Bombs on weak PC sales and supply chain problems, taking the stock down 5% aftermarket. Profit margins were cut. The news could take the stock down to new lows, which didn’t really participate in this week’s monster rally. The rest of the tech sector sold off in sympathy.
Tesla Breaks Production Records in Q3, manufacturing 365,000 EVs and delivering 365,000, a record high. Sales prices have risen three times this year, while commodity costs have fallen dramatically, widening profit margins. This is the most volatile stock in the market, with one 52% correction so far this year, and another 23% correction in recent weeks. It’s the reason we just saw a “buy the rumor, sell the news” type correction that took us to the bottom of a three-month range.
Another factor is that now that big tech is rallying again, people are rotating out of Tesla, which held up well in Q3. Below here, long term Tesla bulls like my friend Ron Baron, Cathie Wood, and I start adding to big positions. With OPEC+ threatening a million barrel a day production cut, taking crude up 6%, oil alternative Tesla should be rising.
Elon Musk Pays Full Price for Twitter at $54.20 a share, completely caving on pending litigation. Wall Street consensus is that the company is worth $15 a share. It may be years before we learn what’s really going on here, leaving many scratching their heads, including me. Tesla (TSLA) plunged $15 on the news, killing off a nascent rally. The distraction of management time will be huge. Avoid (TWTR).
Rivian Raises 2025 Production Goal, from 20,000 to 25,000, after a better-than-expected 7,363 third quarter. Mass production is reaching the sweet spot for the next Tesla. The company is planning a $5 billion investment in non-union Georgia. Buy (RIVN) on dips, sell short puts and buy LEAPS.
Micron Technology to Invest $100 Billion in New York Plant. It’s all part of a retreat from China and paring war risk in Taiwan. Massive government subsidies from the Chips Act helped. Biden also expanded restrictions on the export of key semiconductor manufacturing equipment, America’s crown jewels. It means more expensive buy safer supplied chips for US industry. Buy (MU) on dips.
Hurricane Ian to Cost Insurers $63 Billion, and deaths, and the federal government may be on the hook for more. The storm double-dipped, cutting a wide swath across Florida and the Carolinas. Some 95% of the costs are carried by foreign insurers through the reinsurance market. There are too many billionaire mansions on the beach which are fully insured. This paves the way for major rate increases by insurance companies, which is why Warren Buffet loves the insurance business. Many thanks to the many foreign Mad Hedge subscribers who expressed sympathy over the storm losses.
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil in a sharp downtrend and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
On Monday, October 10, no data of note is released.
On Tuesday, October 11 at 7:00 AM, the 6:00 AM, the NFIB Business Optimism Index for September is released.
On Wednesday, October 12 at 8:30 AM, Producer Price Index for September is published. At 11:00 AM, the FOMC minutes from the last Fed meeting is released.
On Thursday, October 13 at 8:30 AM, Weekly Jobless Claims are announced. We also get the blockbuster Consumer Price Index.
On Friday, October 14 at 8.30 AM, US Retail Sales for September is disclosed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, with the 35th anniversary of the October 19, 1987 crash coming up, when shares dove 22.6% in one day, I thought I’d part with a few memories.
I was in Paris visiting Morgan Stanley’s top banking clients, who then were making a major splash in Japanese equity warrants, my particular area of expertise.
When we walked into our last appointment, I casually asked how the market was doing (Paris is six hours ahead of New York). We were told the Dow Average was down a record 300 points.
Stunned, I immediately asked for a private conference room so I could call the equity trading desk in New York to buy some stock.
A woman answered the phone, and when I said I wanted to buy, she burst into tears and threw the handset down on the floor. Redialing found all Transatlantic lines jammed.
I never bought my stock, nor found out who picked up the phone. I grabbed a taxi to Charles de Gaulle airport and flew my twin Cessna as fast as the turbocharged engines could take me back to London, breaking every known air traffic control rule.
By the time I got back, the Dow had closed down a staggering 512 points, taking the Dow average down to $1,738.74. Then I learned that George Soros asked us to bid on a $250 million blind portfolio of US stocks after the close. He said he had also solicited bids from Goldman Sachs, Merrill Lynch, JP Morgan, and Solomon Brothers, and would call us back if we won.
We bid 10% below the final closing prices for the lot. Ten minutes later he called us back and told us we won the auction. How much did the others bid? He told us that we were the only ones who bid at all!
Then you heard that great sucking sound. Oops!
What has never been disclosed to the public is that after the close, Morgan Stanley received a margin call from the exchange for $100 million, as volatility had gone through the roof, as did every firm on Wall Street.
We ordered JP Morgan to send the money from our account immediately. Then they lost it! After some harsh words at the top, it was found. That’s when I discovered the wonderful world of Fed wire numbers.
The next morning, the Dow continued its plunge, but after an hour managed a U-turn, and launched on a monster rally that lasted for the rest of the year. We made $75 million on that one trade from Soros.
It was the worst investment decision I have seen in the markets in 53 years, executed by its most brilliant player. Go figure. Maybe it was George’s risk control discipline kicking in?
At the end of the month, we then took a $75 million hit on our share of the British Petroleum privatization, because Prime Minister Margaret Thatcher refused to postpone the issue, believing that the banks had already made too much money.
That gave Morgan Stanley’s equity division a break-even P&L for the month of October 1987, the worst in market history. Even now, I refuse to gas up at a BP station on the very rare occasions I am driving an internal combustion engine.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 7, 2022
Fiat Lux
Featured Trade:
(OCTOBER 5 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (TSLA), (PLTR), (UUP), (ROM), (USO), (ARKK), (ROKU)
Below please find subscribers’ Q&A for the October 5 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: Is the final low in, or could we retest yet again (SPY)?
A: We could retest yet again, but it’s very important to notice that the marginal new lows are very small. The low we had on Friday, the last day of September and Q3, was only 800 points lower than the low we had in June—you had to work 4 months just to get a new low of only 800 points. So I think that's the way it's going to go. If we do get new lows, it’ll be incremental new lows—we’re not crashing to 3,000 or anything like that.
Q: What do you think Tesla (TSLA) will bottom at in the short term?
A: $200 or $210. The Tesla deal is a disaster for Elon Musk. It will amount to a huge diversion of management time; he’s going to be facing regulatory hurdles, and even though he said we’re going ahead for the deal, a lot of people still don’t believe it because the financing for the deal may have vaporized in the massive increase in interest rates that has occurred since February. So, there are still a lot of non-believers in this deal. I’d rather have him making solar panels, electric cars and launching rockets, not getting into the social media morass and taking over a broken company. The shareholders clearly don’t like it either, taking the shares down $30 in two days. By the way, if you look at the charts, you notice that people were front-running the Twitter deal by dumping Tesla stock the day before. So yes, it kind of peed on our Tesla parade for the short term; long term it keeps going up and the bad news is in the price.
Q: How do we get the concierge service?
A: Just contact customer support at support@madhedgefundtrader.com or call (347) 480-1034.
Q: Have you revised Tesla’s (TSLA) price target?
A: No, not the long-term ones, just the short-term ones.
Q: Is it possible that bonds are bottoming here, even if we expect further Fed rate rises?
A: Yes, the Fed only has control of overnight rates, and those are rising. In fact, overnight rates are now higher than 10-year rates, and could go much higher still—that's called inversion of the yield curve. We’re almost certainly getting another 150-basis point rise in overnight rates. 10-year bonds or 20-year bonds could well stay around this level, or maybe just a little bit lower. So yes, the bond short is gone. It worked great for us for 2.5 years, we caught a 43% decline in the TLT, but it’s game over. Time to find other trades, like buying stocks.
Q: Does Elon Musk have to sell more Tesla to buy more Twitter?
A: That is the big question being asked today because he already sold $16 billion worth of stock in Tesla to cover the Twitter purchase this year. With the debt markets having fundamentally changed in the last 6 months, the question is: does he have to raise more equity (i.e. sell more Tesla), or can he bring in other equity investors? Hopefully, if he does have to sell more Tesla, it’s not very much—it’s a $44 billion deal and he’s already put $16 billion into it, so maybe he raises another $6 billion to get up to a 50% control level, which the market can easily handle in a day or two. He’s handled all of his past Tesla share sales fairly easily, and he tends to do these at market tops when demand for the shares is overwhelming. Longer term, the much greater demand for selling Tesla shares will come from the equity raises he will need to do to build another six Tesla factories around the world. That could be anywhere from $400 billion to $800 billion, so that will be the much larger cash call, but those are years off at best.
Q: With so many big techs breaking down, how should we play the (ROM) (ProShares Ultra Technology ETF)?
A: From the long side is how you play it. But you really need these capitulation days, especially if you’re involved in 2X ETFs. There is a spectacular play setting up for the (ROM) because it’ll go from $24 (or whatever the final bottom is) to $100 in the next upcycle, so that is a great leverage play that you really want to get involved in.
Q: If I don’t have time to babysit my portfolio, am I better in LEAPS or physical stocks?
A: Well the LEAPS I’m putting out now have a 2 years 4 months expiration date, so you can literally just buy them and forget about them. On the other hand, if we don’t get an economic recovery in 2 years and 4 months, you’re better off buying stocks outright on 2:1 margin. You make less profit, but if we don’t get a recovery for 3, 4, 5 years, then you have no expiration problem with stocks, as opposed to with LEAPS. Now, there are ways to trade around your LEAPS, like financing the long and by shorting puts and getting in for zero, but that requires smaller positions because you have to maintain the margin for the short put side. So, if you want to play it safe, buy the stocks. You can even handle a lost decade with stocks, especially if their dividend pays. With LEAPS, you need a fairly immediate economic recovery, which we should get, especially if the Fed lowers interest rates next year, which it should.
Q: What is your view on the US dollar (UUP)?
A: The dollar seems close to peaking right around here. It will peak on the last day that the Fed raises interest rates, which could be on December 14th. In fact, they may not even wait until then. Depending on the inflation rate, they could only do a quarter or a half-point rate rise in December, thus giving the market their signal that way. Or not do it at all, and the sudden selloff that we had in the dollar, and the stabilization of bonds we had last week is telling you that’s on the table as a possibility. So, we saw really important moves for long-term trend considerations in the markets since last week.
Q: Time for Palantir (PLTR)?
A: No, because the CEO doesn’t give a damn about his stock, and the stock reacts accordingly. I gave up on Palantir for that reason.
Q: How do you see the Ukraine/Russia situation developing?
A: It drags on for another year, Russia keeps losing and throwing men into the meat grinder until Putin gets removed, which should happen next year at which point oil prices collapse. That may be why he blew up the Nordstream One pipeline, to tie the hands of a future Russian government.
Q: Is it safe to buy 30-day Treasury bills in November going into the next F1C meeting?
A: Yes, because they essentially have no risk—that’s basically a cash type investment. And if your broker goes bust you can just force them to hand over your Treasury bonds and not get tied up in any three-year bankruptcy proceeding. It’s an asset, not cash.
Q: Will it be time to buy LEAPS on the next market selloff?
A: Absolutely, yes.
Q: Do you believe Putin would use nukes?
A: No I don’t, because the radioactive cloud would fall back on him immediately. There are very few people who are both stock market experts and nuclear weapons experts; I happen to be one of those—probably the only one in the world in fact—because of my time spent with the atomic energy commission at the Nuclear Test Site in Nevada. The problem with bombing your next-door neighbor with nukes is that the nuclear fallout comes right back on you the next day. Most of Russia’s nukes don’t even work, they only have a handful that actually does, and if he does use one, I bet it would be a tiny one just to demonstrate that he has a working nuke—like just a one-megaton one as opposed to Hiroshima which was 20 kilotons. Or he could drop it in the Black Sea or do an above-ground test at their old nuclear test site that wouldn’t kill anyone, just to show that he has working nukes. I don’t think he will, because we would react in kind in twice the size.
Q: Time to buy ARK Innovation ETF (ARKK)?
A: You might start with a small starter position, just to get it into your portfolio so you remember to buy it on the next dip. Cathy Woods’s leverage in this fund is tremendous. You really want to own it at a market bottom, but picking the actual bottom is going to be tough. One way to achieve this is to just go out and buy Tesla—that way you don’t have to pay the management fee—or buy the top 5 holdings in ARK directly, which includes Roku (ROKU) among others. So yes, I’m watching it; I prefer buying things on the way up and missing the first 10% than to catch a falling knife, and boy has this thing been a falling knife this year.
Q: Do you like biotech here?
A: Absolutely; please subscribe to the Mad Hedge Biotech Letter for biotech recommendations plus LEAPS on biotech plays by clicking here.
Q: Energy is still the best sector now?
A: Yes, but for how long? You don’t want to be left standing when the music stops playing, and that is imminent in the oil industry. It will be illegal to sell gasoline cars in California after 2035, and gas makes up half the oil use in the US.
Q: Did you know that oil reserves (USO) are the lowest since 1984?
A: Yes, I think you may have read that in my newsletter, and that’s because of Biden’s efforts to reduce US gasoline prices through a million barrel per day release from the strategic petroleum reserves in Texas and Louisiana. If we are a net energy producer, why do we even have reserves? It’s an out-of-date holdover from the Cold War.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Tokyo 1975