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September 21 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the September 21 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: What would cause you to look for a lower bottom than $330 on the (SPY)?

A: Nuclear war with Russia would certainly do the trick—they’re now threatening to use tactical nuclear weapons in Ukraine—and higher-than-expected interest rates. If we get another 75 basis points after this one today, then I think you’re looking at new lows, but we won’t find that out until November 2. So, the market may just bounce along the bottom here for a while until it sees what the Fed is going to do, not on this rate hike but the next one after that. Other than that, a few dramatically worse earnings from corporations would also allow us to test a lower low.

Q: Is it time to nibble on Nvidia Corporation (NVDA)?

A: Nvidia is one of the most volatile stocks in the market. You don’t want to go into it until you’re absolutely sure the bottom is in. If that means you miss the first 10% of the following move up, that’s fine because when this thing moves, you get a double or triple out of it. I would wait for the indecision in the market to resolve itself before you get too aggressive on the most volatile stocks in the market. The same is true for the rest of the semiconductor sector.

Q: What does a final capitulation look like?

A: The Volatility Index (VIX) ever $40. We’ve had a high of VIX at $37 so far this year. If really get over $40, that would be a new high for the year. That would signal people that are throwing in the towel, giving up the market, selling everything—of course that is always the best time to buy.

Q: How do we get LEAPS guidance?

A: We send our LEAPS recommendations first to our concierge members—we only have a small number of those—and then after that, they go out to all subscribers to the Mad Hedge Global Trading Dispatch. Everyone gets exposure to the LEAPS. By the way, with LEAPS, you can take up to a month to execute a position. What I do is literally buy 1 contract a day, so I get a nice average over the period of a month when the market is most likely bottoming.

Q: Do you see Intel Corporation (INTC) as a good candidate for a Taiwan invasion hedge?

A: Well, first of all, China’s not going to invade Taiwan. I’ve been waiting for this for 70 years and it’s not going to happen. Also, Intel’s new management has yet to prove itself. You have a salesman running the company; I never like companies run by a salesman. I’d prefer to have an engineer run an engineering company. The court is still out on Intel and whether they can turn that company around or not; so, I would much rather buy the market leaders, Nvidia (NVDA), Advanced Micro Devices (AMD), and Micron Technology (MU) in the semiconductor space.

Q: You talked dollar/cost averaging before. Should we pause on averaging in?

A: No, that's why I say buy one contract a day and put it in order to buy at the bid side of the market. That way, any sudden swoosh down in the market and you’ll get filled. The spreads on these LEAPS are quite wide, so you want to try to buy as close to the middle or bottom end of the spread, and putting in single contract orders over a month, of course, will do that to you.

Q: Does that mean it’s time to sell the ProShares UltraShort 20+ year Treasury Yield (TBT)?

A: I would say yes; (TBT) hit $30.30 yesterday, which is a new multi-year high. I would be taking profits on that because on the next turnaround in bonds, you could get a very rapid move in (TBT) from $30 back down to $20. I’d rather have you keep that profit than try to squeeze the last dollar out of it. Remember, the (TBT) has a negative cost of carry now of 8% a year and that is a big nut to cover.

Q; Market outlook for mid-2023?

A: We could hit my $4,800 target by mid-2023; that is up 28% from here.

Q: Can we buy LEAPS on Amgen (AMGN)?

A: Absolutely yes, you can. Go for the highest listed strike prices on the call side with the longest possible maturity. I would do the January 17, 2025 $350-$360 vertical bull call spread which you can buy now for $1.00. That gives two years and four months to get a tenfold return. That’s enough time for a full-bore recession to happen and then a recovery where markets take off like a rocket. The call spread you bought for $1.00 becomes worth $10.00.

Q: Is there a long position on the beneficiary of government plans to build EV charging stations?

A: There is, but I'm not recommending EV charging stations because it’s a low value-added business. You buy electric power from the local utility, add 10 cents and resell it. The margins are small, the competition is heating up. There are much smarter ways to play EVs than the charging station. ChargePoint (CHPT) is certainly one of them, but it’s not a great investment idea. Look at how ChargePoint (CHPT) has performed over the last six months compared to Tesla (TSLA) and you see what I mean.

Q: Given the very poor investor sentiment, why don’t we get a testing of the lows and result in a (VIX) pop?

A: Absolutely yes—that is what everybody in the market is waiting for. And it could happen as soon as this afternoon. If it doesn’t happen this afternoon, allow for a little rally and then a meltdown on the next piece of bad news.

Q: I’m not able to get an email response from customer support.

A: Try emailing filomena@madhedgefundtrader.com. If that doesn’t work, you can try calling at (347) 480-1034. Filomena will always be happy to take care of you.

Q: What maturity of US Treasury securities would you buy now?

A: I would buy the 30-year. You’re getting close to a 4% yield on that—that is starting to look attractive to people who don’t want to work for a living picking stocks on a daily basis. We are about to see the rebirth of bond investing.

Q: What about banks?

A: Banks will be a screaming buy and a three-year double once recession fears end, which could be in a couple of months. We now have sharply rising interest rates, which banks love, but the bear market in stocks has killed off the IPO business, credit risk is rising, and of course, the Bitcoin business has gone to zero also. So, I would wait for fears of credit quality to end, and then you’ll get a double in the banks very quickly, and notice how they’re all flatlining at a bottom, they’re not actually going down anymore.

Q: Which banks are good choices?

A: Goldman Sachs (GS) and Bank of America (BAC) are two great ones, along with Morgan Stanley (MS) and JP Morgan (JPM).

Q: Do you think the market will bottom by the midterms?

A: I do, I think we will bottom a few weeks before the midterms, or the day after. Sometimes that’s the way it goes, and then it will be off like a rocket for the rest of the year. If we can do this from a much lower level in the SPYs, so much the better. Remember, the next Fed meeting is six days before the election. Yikes!

Q: If OPEC cuts production (USO), won’t the supply/demand cause oil prices to start rising again, increasing inflation and people’s prices at the pump?

A: Yes, but OPEC needs the money. Not necessarily Saudi Arabia, but all the other members of OPEC are starved for cash, and that is always how these shortages end. The smaller members cheat on quotas and bust the price. That's clearly what’s driven us down $50 since the February high, small member cheating. And that will continue. It is a cartel with some serious internal conflicts that will never resolve.

Q: Does it cost $17,000 to mine a Bitcoin?

A: It did four months ago. My guess is it’s more expensive now because of the higher cost of electricity around the world. We may even be up to $20,000 cost, which is why it tends to hang around the $20,000 level on the low side. Below that, miners lose money and the supply dries up, just like you see in the gold market.

Q: Do you have an opinion on Real Estate Investment Trusts (REIT)?

A: Yes; credit risk is rising, as are the yields. In a real estate recession, you start to get more defaults on REITS, but the yields on them are very high; so if you are going to play, buy a basket to spread your risk.

Q: Would you buy ProShares UltraShort 20+ year Treasury Yield (TLT) calls spreads now?

A: Yes, but I would go farther in the money, like the mid $90s, because I don’t think we’ll get that low in this cycle. I would also go out another month; instead of a one-month call spread in the mid $90s, I would do a two-month maturity. You could probably take in about $2,000 on a $10,000 position in the mid $90s.

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

Back at Lake Tahoe

September 12, 2022

Diary, Newsletter, Summary

Global Market Comments
September 12, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or STUCK IN THE MIDDLE)
(SPY), (TSLA), (TLT), (USO), (VIX), (AAPL)

The Market Outlook for the Week Ahead, or Stuck in the Middle

Diary, Newsletter

Buy fear, sell greed.

That is what has been my magic formula for making money over the past 50 years.

But what happens if you get nothing?

What happens if you are stuck in a big fat middle of a range? That seems to be the case now that the market is nailed to the (SPY) 4,000 level, which it turns out is exactly the middle of a four-month trading range.

The market fought the Fed for two months from June and won. It has lost since Jackson Hole. The market has only seen that degree of whipsaw four times since 1950.

It now appears that it is front running a very weak number for the Consumer Price Index on September 13. After that, we get a 75-basis point rate rise on September 20. Good cop first, then bad cop.

That leaves me twiddling my thumbs along with everyone else, waiting for the market to throw up on its shoes. We were almost getting there last week when the Volatility Index (VIX) clawed its way back to $27. Then it gave it all up, falling back to $22. Some $5 is just not enough spread with which to make a living, or worth executing a trade.

And here is the key to the market right now.

You’re not buying stocks for headlines you are seeing today, which are universally dire, cataclysmic, and predicting Armageddon.

You are buying for the headlines that will appear in a year. This will include:

Russia loses the Ukraine War
The price of oil (USO) collapses below $50 a barrel
The European energy crisis ends
Gasoline prices fall below $2.00 a gallon
Inflation falls below 4%
Interest rates stabilize around 3.50%-4.00%
Corporate earnings reaccelerate
We get another $1 trillion in corporate share buybacks

That sounds like one heck of a market to buy into. Why not buy now when everything is on sale, rather than in a year when it is expensive once again?

You don’t have to bet the ranch today. Just scale in, buying 10% of a position a day in your favorite names until you are fully invested. That way, you’ll get an average close to a bottom. You’ll at least get a seat on the train and won’t be left behind waving goodbye from the platform.

That means adding technology stocks to your portfolio, which will be the top-performing sector for the rest of this century.

The other thing you can do is to start getting rid of your defensive names. If you think oil is going below $50 in a year as I do, you don’t want to have a single oil name in your portfolio.

You want to own boring stocks in falling markets and exciting ones in rising markets.

You can’t get THE bottom. I can’t do it, so how are you going to?

There is one other factor that I guarantee you no one is looking at. Do you know anyone who bought a spec home for a quick flip lately? I bet not.

That means there is a lot of speculative capital looking for a new home and I bet that a lot of it is going into the stock market. The same is true with bitcoin.

I just thought you’d like to know.

Apple Rolls Out Next-Gen iPhone. The focus will be on larger phones with faster processors and a better camera. There may also be an inflationary $100 price increase. A new watch and Airpods are also expected. Buzz kill: every two years, this event usually marks a six-month high in the stock. Apple may no longer be the safest stock in the market.

Russia Cuts Gas Supplies to Europe until Ukraine sanctions are lifted. That took the Euro to a 20-year low of under 99 cents. You get into bed with the devil, and you pay the consequences. Russia must desperately need that trade with Europe.

Germany Fights Russia with Coal. Coal is enjoying a renaissance in Germany where it is being used to replace the total cut-off in Russian natural gas. In 2022, coal has jumped from 27% to 33% of electricity production, while gas has plunged from 18% to 11.7%. It goes against the country’s strong environmental principles and will only be used as a bridge towards greatly accelerated alternative energy efforts. Importing all the natural gas they can from the US also helps. It will greatly help Europe hold together this winter to face down the Russian energy war.

Home Equity is Shrinking, down $500 billion from the $11.5 trillion peak. It means less money is available to go into stocks. But we are nowhere near a crash, like we saw in 2008, when home equity nearly went to zero. No liar loans, exaggerated appraisals, or financial crisis this time. This housing recession will be about ice, not fire. There won’t be much of a housing crash when we’re still short 10 million homes. If you sell, your new mortgage will have double the interest rate. Ergo, don’t sell.

Weekly Jobless Claims Hit 3-Month Low, down 6,000 to 222,000. This number is not even close to an economic slowdown. In the wake of the decent nonfarm payroll report last week, it shows that employment is anything but slowing.

Tesla (TSLA) Triples China Deliveries after expanding the Shanghai factory. Elon Musk seems able to accomplish what others can’t, increasing production and sales in the face of rolling Covid lockdowns, heat waves, and materials shortages. Buy (TSLA) on dips.

California Sets a $22 Minimum Wage for fast food workers starting from 2023. It’s a catch-up with minimum wages that haven’t changed for 20 years and represents a broader issue for the rest of the country. Think this may be inflationary? Count on all of this going straight into product price rises. It may become cheaper to make your cheeseburgers at home.

The Bond Market Crashes, with ten-year US Treasury bond soaring 20 basis points to a 3.35% yield. The (TLT) hit a new 2022 low at $107.49. Bonds are reading the writing on the wall from Jackson Hole, even if stocks aren’t. Avoid (TLT).

Oil Crashes $4 on recession fears. Most Russian sales are now taking place 20% below the market to China and India. We may be approaching an interim low as winter approaches unless the Ukraine war ends.

A US Rail Strike Threatens as wage talks stall. A recession could be the result. Negotiators have until September 16 to reach a deal for 115,000 workers. A strike would also spike inflation. This could be our next black swan.

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 decline, inflation falling, 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!

With markets now a snore, my September month-to-date performance ground up to +1.02%. I took profits in my last long in Microsoft (MSFT) going into a rare 100% cash position awaiting the next market entry point.

My 2022 year-to-date performance improved to +60.98%, a new high. The Dow Average is down -12% 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 +73.65%.

That brings my 14-year total return to +573.54%, some 2.48 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +44.98%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 95.2 million, up 300,000 in a week and deaths topping 1,050,000 and have only increased by 2,000 in the past week. You can find the data here.

On Monday, September 12 at 8:30 AM, US Consumer Inflation Expectations for August is released.

On Tuesday, September 13 at 8:30 AM, the US Core Inflation Rate for August is out.

On Wednesday, September 14 at 7:00 AM, the Producer Price Index for August is published.

On Thursday, September 15 at 8:30 AM, Weekly Jobless Claims are announced. We also get Retail Sales for August.

On Friday, September 16 at 7:00 AM, the University of Michigan Consumer Sentiment is disclosed. At 2:00 the Baker Hughes Oil Rig Count are out.

As for me, when you’re 6’4” and 180 pounds, there is not a lot of things that can seriously toss you around. One is a horse, and another is a wave.

It was the latter that took me down to Newport Beach, CA to a beachfront house for my annual foray into body surfing. Newport Beach has some of the best waves in California.

This is the beach that made John Wayne a movie star.

John, whose real name was Marion Morrison, grew up in a Los Angeles suburb and won a football scholarship to the University of Southern California. While still a freshman in 1925, he went bodysurfing at Newport Beach with a carload of buddies. A big wave picked him up and smashed him down on the sand, breaking his right shoulder.

At football practice, there was no way a big lineman could block and tackle with a broken shoulder, so he was kicked off the team and lost his scholarship.

He still had to eat, so he resorted to the famed student USC jobs bulletin board, which I have taken advantage of myself (it’s where I got my LA coroner’s job).

The 6’4” Wayne was hired as a stagehand by up-and-coming movie director John Ford, himself also a former college football star. In 14 years, Wayne worked himself up from gopher, to extra, to a leading man in 1930, and then his breakout 1939 film Stagecoach.

During WWII, Wayne, too old, was confined to entertainment for the USO shows and making propaganda films while the rest of his generation was at the front. He never recovered from that humiliation and spent the rest of his life as a super patriot.

I saw John Wayne twice. My uncle Charles, who was the CFO of the Penn Central Railroad in the 1960s, made a fortune selling short the stock right before it went bankrupt (maybe that was legal then?). He bought a big beach house on California Balboa’s Island right next door to John Wayne’s.

One day, the family was cruising by Wayne’s house, and he was sitting on his front patio in a beach chair. Then one of our younger kids shouted out “he’s bald” which he was. Wayne laughed and waved.

The second time was in the early 1970s. I was walking across the lobby of the Beverly Hills Hotel with the movie star and Miss America runner-up Cybil Shephard on my arm. He walked right up to us and with a big smile said, “hello gorgeous”. He wasn’t talking to me.

I learned a lot about Wayne from my uncle, Medal of Honor winner Mitchell Paige, who was hired as the technical consultant for the 1949 film Sands of Iwo Jima and spent several months working closely with him. The lead character, Marine Sargent John Striker, was based on Mitch.

Film critics complained that Wayne couldn’t act, that he was just himself all the time. But I knew my uncle Mitch well, a humble, modest, self-effacing man, and Wayne absolutely nailed him to a tee.

The Searchers, made in 1958, and directed by John Ford, is considered one of the finest movies ever made. I show it to my kids every Christmas to remind them where they came from because we have an ancestor who was kidnapped in Texas by the Comanches and survived.

John Wayne was a relentless chain smoker, common for the day, and lung cancer finally caught up with him. His first bout was in 1965 when he was making In Harm’s Way, the worst war movie he ever made. His last film, The Shootist, made in 1978, was ironically about an old gunslinger dying of prostate cancer.

John Wayne hosted the 1979 Academy Awards rail thin, racked by chemotherapy and radiation treatments. He died a few months later after making an incredible 169 movies in 50 years.

John Wayne was one of those people you’re lucky to run into in life. He was a nice guy when he didn’t have to be.

As for those waves at Newport Beach, I can vouch they are just as tough as they were 100 years ago.

Stay healthy,

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

September 6, 2022

Diary, Newsletter, Summary

Global Market Comments
September 6, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE ROLLING RECESSION),
(AAPL), (NVDA), (TSLA), (USO), (BTC), (MSFT), (CRM), (V), (BA), (MSFT), (CRM), (DIS)

The Market Outlook for the Week Ahead, or Welcome to the Rolling Recession

Diary, Newsletter, Research

The airline business is booming but homebuilders are in utter despair. Hotel rooms are seeing extortionate 56% YOY price increases, while residential real estate brokers are falling flat on their faces.

It’s a recession that’s here, there, and nowhere.

Welcome to the rolling recession.

If you are lucky enough to work in a handful of in-demand industries, times have never been better. If you aren’t, then it’s Armageddon.

Look at single industries one at a time, as the media tends to do, business conditions are the worst since the Great Depression and pessimism is rampant. Look at Tesla, where there is a one-year wait to get a Model X, and there is either a modest recession on the menu, or simply slowing growth at worst.

Notice that a lot of commentators are using the word “normally”. News Flash: nothing has been normal with this economy for three years.

Which leaves us with dueling yearend forecasts for the S&P 500. It will either be at 3,900, where it is now, or 4,800. A market that is unchanged, worst case, and up 20% best case sounds like a pretty good bet to me. The prospects for individual stocks, like Tesla (TSLA), Microsoft (MSFT), or NVIDIA (NVDA) are even better, with a chance of 20% of downside or 200% of upside.

I’ll sit back and wait for the market to tell me what to do. In the meantime, I am very happy to be up 60% on the year and 90% in cash.

An interesting thing is happening to big-cap tech stocks these days. They are starting to command bigger premiums both in the main market and in other technology stocks as well.

That is because investors are willing to pay up for the “safest” stocks. In effect, they have become the new investment insurance policy. Look no further than Apple (AAPL) which, after a modest 14% decline earlier this year, managed a heroic 30% gain. Steve Jobs’ creation now boasts a hefty 28X earnings multiple. Remember when it was only 9X?

Remember, the stock sells off on major iPhone general launches like we are getting this week, so I’d be careful that my “insurance policy” doesn’t come back and bite me in the ass.

Nonfarm Payroll Report Drops to 315,000 in August, a big decline, and the Headline Unemployment Rate jumps to 3.7%. The Labor Force Participation Rate increased to 62.4%. The “discouraged worker” U-6 unemployment rate jumped to 7.0%. Manufacturing gained 22,000. Stocks loved it, but it makes a 75-basis point in September a sure thing.

Jeremy Grantham Says the Stock Super Bubble Has Yet to Burst, for the seventh consecutive year. If I listened to him, I’d be driving an Uber cab by now, commuting between side jobs at Mcdonald's and Taco Bell. Grantham sees stocks, bonds, commodities, real estate, precious metals, crypto, and collectible Beanie Babies as all overvalued. Even a broken clock is right twice a day unless you’re in the Marine Corps, which uses 24-hour clocks.

Where are the Biggest Buyers on the Dip? Microsoft (MSFT), Salesforce (CRM), and Disney (DIS), followed by Visa (V), and Boeing (BA). Analysts see 20% of upside for (MSFT), 32% for (CRM), and 21% for (DIS). Sure, some of these have already seen big moves. But the smart money is buying Cadillacs at Volkswagen prices, which I have been advocating all year. Take the Powell-induced meltdown as a gift.

The Money Supply is Collapsing, down for four consecutive months. M2 is now only up less than 1% YOY. This usually presages a sharp decline in the inflation rate. With a doubling up of Quantitative Tightening this month, we could get a real shocker of a falling inflation rate on September 13. Online job offers are fading fast and used cars have suddenly become available. This could put in this year’s final bottom for stocks.

California Heads for a Heat Emergency This Weekend, with temperatures of 115 expected. Owners are urged to fully charge their electric cars in advance and thermostats have been moved up to 78 as the electric power grid faces an onslaught of air conditioning demand. The Golden State’s sole remaining Diablo Canyon nuclear power plant has seen its life extended five years to 2030. This time, the state has a new million more storage batteries to help.

Oil (USO) Dives to New 2022 Low on spreading China lockdowns. Take the world’s largest consumer offline and it has a big impact. More lows to come.

NVIDIA (NVDA) Guides Down in the face of new US export restrictions to China. The move will cost them $400 million in revenue. These are on the company’s highest-end A100 and H100 chips which China can’t copy. (AMD) received a similar ban. It seems that China was using them for military AI purposes. The shares took a 9% dive on the news. Cathie Wood’s Ark (ARKK) Funds dove in and bought the lows.

Weekly Jobless Claims Plunge to 232,000, down from 250,000 the previous week for the third consecutive week. No recession in these numbers.

First Solar (FSLR) Increases Output by 70%, thanks to a major tax subsidy push from the Biden Climate Bill. The stock is now up 116% in six weeks. We have been following this company for a decade and regularly fly over its gigantic Nevada solar array. Buy (FSLR) on dips.

Home Prices Retreat in June to an 18% YOY gain, according to the Case Shiller National Home Price Index. That’s down from a 19.9% rate in May. Tampa (35%), Miami (33%), and Dallas (28.2%) showed the biggest gains. Blame the usual suspects.

Tesla (TSLA) Needs $400 Billion to expand its vehicle output to Musk’s 20 million units a year target. One problem: there is currently not enough commodity production in the world to do this. That sets up a bright future for every commodity play out there, except oil.

Bitcoin (BTC) is Headed Back to Cost, after breaking $20,000 on Friday. With the higher cost of electricity and mining bans, spreading the cost of making a new Bitcoin is now above $17,000. It doesn’t help that much of the new crypto infrastructure is falling to pieces.

My Ten-Year View

When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil prices and inflation now rapidly declining, and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!

With a very troublesome flip-flopping market, my August performance still posted a decent +5.13%.

My 2022 year-to-date performance ballooned to +59.96%, a new high. The Dow Average is down -13.20% 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 +71.90%.

That brings my 14-year total return to +572.52%, some 2.60 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +44.90%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 94.7 million, up 300,000 in a week and deaths topping 1,047,000 and have only increased by 2,000 in the past week. You can find the data here.

On Monday, September 5 markets are closed for Labor Day.

On Tuesday, September 6 at 7:00 AM, the ISM Non-Manufacturing PMI for August is out.

On Wednesday, September 7 at 11:00 AM, the Fed Beige Book for July is published.

On Thursday, September 8 at 8:30 AM, Weekly Jobless Claims are announced.

On Friday, September 9 at 2:00 the Baker Hughes Oil Rig Count is out.

As for me, the first thing I did when I received a big performance bonus from Morgan Stanley in London in 1988 was to run out and buy my own airplane.

By the early 1980s, I’d been flying for over a decade. But it was always in someone else’s plane: a friend’s, the government’s, a rental. And heaven help you if you broke it!

I researched the market endlessly, as I do with everything, and concluded that what I really needed was a six-passenger Cessna 340 pressurized twin turbo parked in Santa Barbara, CA. After all, the British pound had just enjoyed a surge again the US dollar so American planes were a bargain. It had a range of 1,448 miles and therefore was perfect for flying around Europe.

The sensible thing to do would have been to hire a professional ferry company to fly it across the pond. But what’s the fun in that? So, I decided to do it myself with a copilot I knew to keep me company. Even more challenging was that I only had three days to make the trip, as I had to be at my trading desk at Morgan Stanley on Monday morning.

The trip proved eventful from the first night. I was asleep in the back seat over Grand Junction, CO when I was suddenly awoken by the plane veering sharply left. My co-pilot had fallen asleep, running the port wing tanks dry and shutting down the engine. He used the emergency boost pump to get it restarted. I spent the rest of the night in the co-pilot’s seat trading airplane stories.

The stops at Kansas City, MO, Koshokton, OH, Bangor, ME proved uneventful. Then we refueled at Goose Bay, Labrador in Canada, held our breath and took off for our first Atlantic leg.

Flying the Atlantic in 1988 is not the same as it is today. There were no navigational aids and GPS was still top secret. There were only a handful of landing strips left over from the WWII summer ferry route, and Greenland was still littered with Mustang’s, B-17’s, B24’s, and DC-3’s. Many of these planes were later salvaged when they became immensely valuable. The weather was notorious. And a compass was useless, as we flew so close to the magnetic North Pole the needle would spin in circles.

But we did have NORAD, or America’s early warning system against a Russian missile attack.

The practice back then was to call a secret base somewhere in Northern Greenland called “Sob Story.” Why it was called that I can only guess, but I think it has something to do with a shortage of women. An Air Force technician would mark your position on the radar. Then you called him again two hours later and he gave you the heading you needed to get to Iceland. At no time did he tell you where HE was.

It was a pretty sketchy system, but it usually worked.

To keep from falling asleep, the solo pilots ferrying aircraft all chatted on frequency 123.45 MHz. Suddenly, we heard a mayday call. A female pilot had taken the backseat out of a Cessna 152 and put in a fuel bladder to make the transatlantic range. The problem was that the pump from the bladder to the main fuel tank didn’t work. With eight pilots chipping in ideas, she finally fixed it. But it was a hair-raising hour. There is no air-sea rescue in the Arctic Ocean.

I decided to play it safe and pick up extra fuel in Godthab, Greenland. Godthab has your worst nightmare of an approach, called a DME Arc. You fly a specific radial from the landing strip, keeping your distance constant. Then at an exact angle you turn sharply right and begin a descent. If you go one degree further, you crash into a 5,000-foot cliff. Needless to say, this place is fogged 365 days a year.

I executed the arc perfectly, keeping a threatening mountain on my left while landing. The clouds mercifully parted at 1,000 feet and I landed. When I climbed out of the plane to clear Danish customs (yes, it’s theirs), I noticed a metallic scraping sound. The runway was covered with aircraft parts. I looked around and there were at least a dozen crashed airplanes along the runway. I realized then that the weather here was so dire that pilots would rather crash their planes than attempt a second go.

When I took off from Godthab, I was low enough to see the many things that Greenland is famous for polar bears, walruses, and natives paddling in deerskin kayaks. It was all fascinating.

I called into Sob Story a second time for my heading, did some rapid calculations, and thought “damn”. We didn’t have enough fuel to make it to Iceland. The wind had shifted from a 70 MPH tailwind to a 70 MPH headwind, not unusual in Greenland. I slowed down the plane and configured it for maximum range.

I put out my own mayday call saying we might have to ditch, and Reykjavik Control said they would send out an orange bedecked Westland Super Lynch rescue helicopter to follow me in. I spotted it 50 miles out. I completed a five-hour flight and had 15 minutes of fuel left, kissing the ground after landing.

I went over to Air Sea rescue to thank them for a job well done and asked them what the survival rate for ditching in the North Atlantic was. They replied that even with a bright orange survival suit on, which I had, it was only about half.

Prestwick, Scotland was uneventful, just rain as usual. The hilarious thing about flying the full length of England was that when I reported my position in, the accents changed every 20 miles. I put the plane down at my home base of Leavesden and parked the Cessna next to a Mustang owned by a rock star.

I asked my pilot if ferrying planes across the Atlantic was also so exciting. He dryly answered “Yes.” He told me that in a normal year, about 10% of the planes go missing.

I raced home, changed clothes, and strode into Morgan Stanley’s office in my pin-stripped suit right on time. I didn’t say a word about what I just accomplished.

The word slowly leaked out and at lunch, the team gathered around to congratulate me and listen to some war stories.

Stay healthy,

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

Flying the Atlantic in 1988

Looking for a Place to Land in Greenland

Landing on a Postage Stamp in Godthab, Greenland

No Such a Great Landing

Flying Low Across Greenland

Gassing Up in Iceland

Almost Home at Prestwick

Back to London in 1988

August 23, 2022

Diary, Newsletter, Summary

Global Market Comments
August 23, 2022
Fiat Lux

Featured Trade:

(BETTER BATTERIES HAVE BECOME BIG DISRUPTERS)
(TSLA), (XOM), (USO)

Better Batteries Have Become Big Disrupters

Diary, Newsletter

We are on the verge of seeing the greatest advancement in technology this century, the mass production of solid-state batteries. The only question is whether Tesla (TSLA) will do it, which is remaining extremely secretive, or whether one of the recent spates of startups pulls it off.

When it happens, battery efficiencies will improve 20-fold, battery weights will fall by 95%, and electric car ranges will improve by double. There isn’t much point in extending your battery range beyond your bladder range.

Car prices will collapse and the global economy will receive a huge boost.

With alternative energy sources growing by leaps and bounds, with a gale force tailwind provided by the Biden administration, it’s time to take another look at battery technologies.

I have been arguing for years that oil is on its way out. Today, I am going to tell you what will replace it.

Sony Corp. (SNE) invented the lithium-ion battery in 1991 to power its high-end consumer electronic products.

It is now looking like that was a discovery on par with Bell Labs’ invention of the transistor in 1947 and Intel’s creation of the microprocessor in 1971, although no one knew it at the time.

After all, Alexander Graham Bell invented the telephone as an aid for the deaf, and Thomas Edison invented records to replay telegraph messages. He had no idea there was a mass market for recorded music.

Until then, battery technology was essentially unchanged since it was invented by Alessandro Volta in 1800 and Gaston Plante upgraded it to the lead acid version in 1859. Not a lot of progress.

That is the same battery that starts your conventional gasoline-powered car every morning.

The Sony breakthrough proved to be the springboard for a revolution in battery power. It has fed into cheaper and ever more powerful iPhones, electric cars, laptops, and even large-scale utilities.

In 1995, the equivalent of today’s iPhone 13 battery cost $10. Today, it can be had for less than ten cents if you buy in bulk, which Apple does by the shipload. That’s a cost reduction of a mind-blowing 99%.

Electric car batteries have seen prices plunge from $1,000/kilowatt in 2009 to only $100 today.

Tesla (TSLA) expects that price to drop well under $100 with its new $6 billion “Gigafactory” in Sparks, Nevada. A second one is under construction. That is important as $100 has long been seen as the holy grail, where electric cars become cheaper than gasoline-powered ones on a day-to-day basis.

The facility is producing cookie cutter, off-the-shelf batteries made under contract by Japan’s Panasonic (Matsushita) that can fit into anything.

If you took existing battery technologies and applied them as widely as possible, it would have the effect of reducing American oil consumption from 22 to 16 million barrels a day.

That’s what the oil market seems to be telling us, with prices hovering just under $90 a barrel, less than a half of where they were a decade ago on an inflation-adjusted basis.

Improve battery capabilities just a little bit more and that oil consumption drops by half very quickly.

Both national and state governments are doing everything they can to make it happen.

The US now has a commanding technology lead over the rest of the world (I can’t believe the Germans fell so far behind on this one).

In 2009, President Obama chipped in $2.4 billion for battery and electric car development as part of his $787 billion stimulus package. He got a lot of bang for the buck.

So far, I have been the beneficiary of not one, but four $7,500 federal tax credits for my purchase of my Nissan Leaf and two Tesla S-1s, and a Model X. The Feds also chipped in another $75,000 for my new solar roof panels and six Powerwalls.

A reader told me yesterday that Sweden will ban the sales of gasoline and diesel-powered vehicles starting 2030. China and the UK will do the same. Japan wants electric and hybrids to account for half of its new car sales by 2030.

California has been the most ambitious, investing to obtain 100% of its power from alternative sources by 2030. Some one million homes here already have solar panels, and these are not even counted in the alternative’s equation.

Solar and wind are already taking over in much of Europe on a nonsubsidized, cost-competitive basis.

By 2030, a ten-pound battery in your glove compartment (glove box to you Brits in London) will be able to take your car 300 miles. The cost of energy will essentially be free.

And guess what?

I am able to use my solar panels to charge my 81-kilowatt Tesla battery during the day and then use it to power my home at night.

That is enough juice to keep the lights on forever, as the system recharges every day. Then, I will be totally off the grid for good, with utility bills of zero.

Want to know where I live? Just wait for the next power outage. I am the only one with lights. That’s when I charge my neighbors a bottle of chardonnay to charge their phones and laptops.

To say this will change the geopolitical landscape would be a huge understatement.

The one-liner here is that oil consumers will benefit enormously, like you, while the producers will get destroyed. I’m talking Armageddon, mass starvation levels of destruction.

In the Middle East, some 1 billion people with the world’s highest birth rates will lose their entire source of income.

Russia, which sees half its revenues come from oil, will cease to be a factor on the international stage, and may even undergo a third revolution. Take oil away, and all they have left is hacking, bots, borscht, and half an antiquated army.

Norwegians will have to start paying for their social services instead of getting them for free.

Venezuela, which couldn’t make it at $100 a barrel, will implode, destabilizing Latin America. It’s already started.

It's going to be an interesting decade for us geopolitical commentators.

Further improvements in battery power per dollar will change the US economy beyond all recognition.

This will be a big win for the 90% of the economy that consumes energy and an existential crisis for the 10% that produce it.

Public utilities will have to change their business models from power producers to distributors.

No less an authority than former Energy Secretary Dr. Steven Chu (another Berkeley grad) has warned the industry that they must change or get “FedExed”, much the same way that overnight delivery replaced the US Post Office.

US oil majors will suffer some very tough times but won’t disappear. My bet has always been that they will buy the entire alternatives industry the second it becomes profitable.

After all, they are not in the oil business, but in the profit-making business, and they certainly have the cash and the management and engineering expertise to pull this off. Exxon (XOM) will turn green out of necessity. It’s already talking as such.

As is always the case, there are very few publicly listed stock plays in a brand-new emerging technology like the battery sector.

Many of the early-stage entrants have already filed for bankruptcy and had their assets taken over for pennies on the dollar.

It’s a business you want to be in because Citibank expects that giant grid-scale batteries alone will be a $400 billion a year market by 2030.

When I visit friends at the oil majors in Houston, I chided them to be kind to that Birkenstock-wearing longhaired visitor.

He may be their future boss.

Tesla’s Solid-State Battery Design

Is that a Double Top?

May 11, 2022

Diary, Newsletter, Summary

Global Market Comments
May 11, 2022
Fiat Lux

Featured Trade:

(JOIN ME ON CUNARD’S MS QUEEN VICTORIA
FOR MY JULY 9, 2022 SEMINAR AT SEA)

May 10, 2022

Diary, Newsletter, Summary

Global Market Comments
May 10, 2022
Fiat Lux

Featured Trade:

(MAY 4 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (ROM), (ARKK), (LMT), (RTN), (USO), (AAPL), (BRKB), (TLT), (TBT), (HYG), (AMZN)

May 4 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the May 4 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.

Q: How confident are you to jump into stocks right now?

A: Not confident at all. If you look at all of my positions, they’re very deep in the money and fully hedged—I have longs offsetting my shorts—and everything I own expires in 12 days. So, I’m expecting a little rally still here—maybe 1,000 points after the Fed announcement, and then we could go back to new lows.

Q: Would you scale into ProShares Ultra Technology ETF (ROM) if you’ve been holding it for several years?

A: I would—in the $40s, the (ROM) is very tempting. On like a 5-year view, you could probably go from the $40s to $150 or $200. But don’t expect to sleep very much at night if you take this position, because this is volatile as all get out. It's not exactly clear whether we have bottomed out in tech or not, especially small tech, which the (ROM) owns a lot of.

Q: Is it time to buy the Ark Innovation ETF (ARKK) with the 5-year view?

A: Yes. I mentioned the math on that a couple of days ago in my hot tips. Out of 10 positions, you only need one to go up ten times to make the whole thing worth it, and you can write off everything else. Again, we’re looking at venture capital type math on these leverage tech plays, and that makes them very attractive; however I’m always trying to get the best possible price, so I haven’t done it yet.

Q: We’ve been hit hard with the tech trade alerts since March. Any thoughts?

A: Yes, we’re getting close to a bottom here. The short squeeze on the Chinese tech trade alerts that we had out was a one-day thing. However, when you get these ferocious short covering rallies at the bottom—we certainly got one on Monday in the S&P 500 (SPY) —it means we’re close to a bottom. So, we may go down maybe 4%-6% and test a couple more times and have 500- or 1000-point rallies right after that, which is a sign of a bottom. There’s a 50% chance the bottom was at $407 on Monday, and 50% chance we go down $27 more points to $380.

Q: Is the Roaring 20s hypothesis still on?

A: Yes absolutely; technology is still hyper-accelerating, and that is the driver of all of this. And while tech stocks may get cheap, the actual technology underlying the stocks is still increasing at an unbelievable rate. You just have to be here in Silicon Valley to see it happening.

Q: Do you like defense stocks?

A: Yes, because companies like Lockheed Martin (LMT) and Raytheon (RTN) operate on very long-term contracts that never go away—they basically have guaranteed income from the government—meeting the supply of F35 fighters for example, for 20 years. Certainly, the war in Ukraine has increased defense spending; not just the US but every country in the world that has a military. So all of a sudden, everybody is buying everything—especially the javelin missiles which are made in Florida, Georgia and Arizona. The Peace Dividend is over and all defense companies will benefit from that.

Q: Is Buffet wrong to go into energy right now? How will Berkshire Hathaway Inc. (BRK.B) perform if energy tanks?

A: Well first of all, energy is only a small part of his portfolio. Any losses in energy would be counterbalanced by big gains in his banking holdings, which are among his largest holdings, and in Apple (AAPL). Buffet does what I do, he cross-hedges positions and always has something that’s going up. I think Berkshire is still a buy. And he's not buying oil, per say; he is buying the energy producing companies which right now have record margins. Even if oil goes back down to $50 a barrel, these companies will still keep making money. However, he can wait 5 years for things to work for him and I can’t; I need them to work in 5 minutes.

Q: You must have suffered big oil (USO) losses in the past, right?

A: Actually I have not, but I have seen other people go bankrupt on faulty assumptions of what energy prices are going to do. In the 1990s Gulf War, someone made an enormous bet that oil would go up when the actual shooting started. But of course, it didn’t, it was a “buy the rumor, sell the news” situation. Energy prices collapsed and this hedge fund had a 100% loss in one day. That is what keeps me from going long energy at the top. And the other evidence that the energy companies themselves believe this is true is that they’re refusing to invest in their own businesses, they won’t expand capacity even though the government is begging them to do so.

Q: Why should we stay short the iShares 20 Plus Year Treasury Bond ETF (TLT) instead of selling out for a profit or holding on due to your statement that the TLT will go down to $105/$110?

A; If you have the December LEAPS, which most of you do, there’s still a 10% profit in that position running it seven more months. In this day and age, 7% is worth going for because there isn’t anything else to buy right now, except very aggressive, very short term, front month options, which I've been doing. So, the only reason to sell the TLT now and take a profit—even though it’s probably the biggest profit of your life—is that you found something better; and I doubt you're finding anything better to do right now than running your short Treasuries.

Q: Are you still short the TLT?

A: Yes, the front months, the Mays, expire in 8 days and I’m running them into expiration.

Q: What will Bitcoin do?

A: It will continue to bounce along a bottom, or maybe go lower as long as liquidity in the financial system is shrinking, which it is now at roughly a $90 billion/month rate. That’s not good for Bitcoin.

Q: Is now the time for Nvidia Corporation (NVDA)?

A: Yes, it’s definitely time to nibble here. It’s one of the best companies in the world that’s dropped more than 50%. I think we’d have a final bottom, and then we’re entering a new long term bull market where we’d go into 1-2 year LEAPS.

Q: What do you think of buying the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) junk bond fund here for 6% dividend?

A: If you’re happy with that, I would go for it. But I think junk is going to have a higher dividend yet still. This thing had a dividend in the teens during the financial crisis; I don’t think we’ll get to the teens this time because we don’t have a financial crisis, but 7% or 8% are definitely doable. And then you want to look at the 2x long junk bond special ETFs, because you’re going to get a 16% return on a very boring junk bond fund to own.

Q: What do you think about Amazon (AMZN) at this level?

A: I think it’s too early and it goes lower. Not a good stock to own during recession worries. At some point it’ll be a good buy, but not yet.

Q: Energy is the best sector this year—how long can it keep going?

A: Until we get a recession. By the way, if you want evidence that we’re not in a recession, look at $100/barrel oil. When you get real recessions, oil goes down to 420 or $30….or negative $37 as it did in 2020. There’s a lot of conflicting data out in the market these days and a lot of conflicting price reactions so you have to learn which ones to ignore.

Q: Should we stay short the (TLT)?

A: Yes, we should. I’m looking for a 3.50% yield this year that should take us down to $105.

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