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March 8 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the March 8 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, CA.

Q: Do you think the US dollar will drop this year?

A: Absolutely it will drop; in fact, the drop started in October last year. We’re actually six months into a bear market for the US dollar (UUP), and bull market for the yen (FXY), the British pound (FXB), the euro (FXE), and the Australian dollar (FXA). However, the rate-cutting scenario is on vacation, and when it comes back from that vacation, then we will see very sharply dropping interest rates, soaring bond prices, and a weak dollar. That scenario is certain to happen by year-end, probably by 10 or 20% —quite a lot. If you just want to buy the basket for foreign currencies, you can sell short the Invesco DB US Dollar Index Bullish Fund (UUP).

Q: Can stocks (SPY) and bonds (TLT) go up at the same time?

A: Well, they shouldn’t, and usually they don’t. But this time it’s different now because we’re all beholden to the interest rate decisions of the Fed. All asset classes are moving together like synchronized swimmers, which means that on days when the market believes that Powell is finished raising rates, you get big bull moves in stocks, bonds, commodities, precious metals, and beanie baby collectibles. And on the bad days like yesterday, where Powell really reiterates how tough his stance is on inflation is unchanged, everything falls in unison. It’s really become a liquidity/confidence/inflation on-off type market. We have been playing that like a maestro for the last six months and have made a ton of money. I hope it continues that way. “If it’s working, don’t fix it” is my philosophy on trading, which is constantly changing.

Q: Do small caps underperform or overperform in a rising rates era?

A: They always do poorly because small caps have fewer cash reserves, more leverage, and more exposure to interest rates, as opposed to large caps which, in the tech area, don’t borrow at all. They’re actually net creditors to the system so they make more money when interest rates go up. I imagine the interest income at Apple this year has to be absolutely gigantic. That said, small caps always lead recoveries because of their excess leverage, so that's why people are piling into small caps on dips right now. Going from terrible to just bad often generates the best stock returns.

Q: How long will “steering wheel falling off” news tank Tesla?

A: Well, it was worth a $6 dollar drop today in an otherwise weak market. First of all, if there are any actual problems with Tesla, they fix them immediately for free, and most of the fixes can be done with a software upgrade which they do at midnight the day of the recall. Second, a lot of these stories about Tesla problems are false, planted there by the oil industry, trying to head off their own demise. Third, when you go from making several thousand to several million cars a year, scaling up to mass production always uncovers some sort of manufacturing flaws. Tesla can fix them faster than anyone else. I remember when the first Model S came out 13 years ago, we had a hot day and all the sealants on the windows melted. They said they didn’t know because it doesn’t get that hot in Fremont California where they build the cars. They sent out a truck the next day and installed all new sealants on our windows. So that is part of living with Tesla, which seems bent on taking over the world. And I’m working on a major update on Tesla report. I listened to the whole 3.5-hour investors day, and I'll get that out when I get all the snow shoveled. Full disclosure: Elon Musk personally gave me a free $12,800 Tesla Powerwall three years ago. It’s the red one.

Q: I just bought the United States Natural Gas Fund (UNG) 14/15 2025 LEAP for $0.20 with UNG down 3%.

A: I’m going to share that LEAPS with all the Global Trading Dispatch members tomorrow. So far, only the Mad Hedge Concierge members have seen it. We’ll go into great detail in tomorrow’s letter about why you want to buy natural gas here and how you want to play it.

Q: It seems the Fed won’t be happy unless there’s a recession; am I reading this wrong?

A: I think Powell is striving for perfection—killing off inflation and lowering interest rates without a recession. I actually am hoping for a recession myself, even if it’s just for one quarter because that greatly increases market volatility and makes my bond long look like a stroke of genius. And let’s see if he can pull it off. He’s coming facing so many unprecedented challenges to the economy, like the pandemic, the end of liquidity, and the extreme worker shortage. It’ll be really interesting to see what happens. Multiple PhD theses in economics begging to be addressed in there.

Q: Will artificial intelligence cause another bubble?

A: Absolutely, yes. And if you’ve been in the market long enough, you become a bubble collector like me. Just off the top of my head, 3D printing, cold fusion, bitcoin, portfolio insurance, Nifty 50, eyeballs,—if I spent more time, I could come up with an endless list. And this is how Wall Street makes their money—they create bubbles by manufacturing compelling, irresistible stories that can be sold to the masses. Some of these like cold fusion, I know immediately won’t work for 20 years because of my physics background, and definitely not now. Some of these other ones are just flashes in the pan and never work. You just get used to an endless series of bubbles. AI is new only if you haven’t been watching. The share prices of Google, Amazon, Apple, have already had gigantic moves in the last 20 years, largely because of their use of artificial intelligence. So those are your plays—those and (NVDA), which provides the essential chips for artificial intelligence, and we’re active in all of these, both on the long and short side.

Q: Is climate change a hoax or a bubble?

A: If you think it’s a hoax, will you please come over to Incline Village and get the 12 feet of snow off my damn roof before the house collapses. I already can’t close any doors in the house because the weight of the snow is buckling the house and bending the door frames. If you finish the roof, then you can get to work on my deck which also has about 8 ft of snow and is at risk of collapsing, like many in town already have. This has never happened before. The climate has changed.

Q: How come there’s never mention of demographic shift in other parts of the world when there is in the US?

A: The US is the only country in the world where you can earn enough money to retire early. If you live on the coasts, you can sell your house for cash, move inland and never work again, no matter your age. There is no other country where you can do that. Maybe there will be in the future, but definitely not right now. People who complain about how awful the economy is here forget that this is the best economy in the world and has been so for a very long time. I go with the Warren Buffet outlook on this, which is “Never bet against America.”

Q: How about an Entry point for Freeport McMoRan (FCX)?

A: It’s lower. You don’t want to touch it while the entire commodity sector is selling off in fears of higher interest rates in a recession. Once that’s over it goes to $100.

Q: What is the best way to play Natural Gas?

A: I’ll send an extended report tomorrow, but the short answer is United States Natural Gas Fund (UNG) and ProShares Ultra Bloomberg Natural Gas (BOIL), which is a 2x long day trading NatGas ETF.

Q: Are we entering LEAPS territory for Rivian (RIVN)?

A: Yes, just wait for the current selloff to end and then go to the longest possible expiration. This thing will have a multiple move 2x, 3x, or a 10x out the other side of any recession. The CEO is brilliant and people love the cars.

Q: What happens to housing prices when interest rates on mortgages are at 7%?

A: Well, they should go down 10-20%. What they’re actually doing is going sideways, and they’re still going up in the cheaper neighborhoods because of the structural shortage of 10 million houses in the US. The all-cash buyers are still out there buying. There is tremendous inventory shortage in the housing market now; every broker I know got cleaned out of all their inventory in January when we had a brief 100 basis point dip in rates back then, which has since gone away. I think we go sideways in housing until the end of the year, and then big interest rate cuts will be obvious by then, and the market takes off and we have another 10-year bubble. If you think housing is expensive now, go visit Sydney Australia or Shanghai, China and you’ll see how expensive housing can really get.

Q: How how high would Fed funds have to get to cause a real recession?

A: My guess is 6%. We might actually get there in the second quarter. That might trigger enough of a recession to start unemployment rising just enough to let them cut interest rates. My attitude is: rip the Band-Aid off, raise by 75 basis points on March, and get it over with. But Jay Powell is a very gradualist type of guy, even though he’s brought the sharpest interest rate rise in history.

Q: Should I chase Apple (AAPL) here at $150 a share?

A: In this kind of market, you never chase anything. Only buy Apple at $150 if you think happy days are here again and you think we’re going up forever. To me on the chart it looks like we’re double topping and may actually get a lower low, which you then buy. You may even want to do a LEAPS on Apple if we get down into the $130s or $120s again.

Q: Isn’t it hard for the economy to really tank when seniors and savers are now generating income again for their retirement, giving them more income to spend?

A: Well not only that but workers have had 10-20% pay increases also, and they have more money to spend. It’s really hard to see a severe recession in any kind of scenario, barring another pandemic, and that’s why we’re saying buy the dips—we are in fact in a new bull market that started in October. When you get these market reversals, you often don’t get confirmation on the charts for up to a year, and we’re in one of those periods now. That's why there are still a lot of non-believers in the bull scenario and no confidence.

Q: Would you buy Tesla LEAPS?

A: Yes, under $150 on Tesla shares. And, given its record of volatility, we may actually get there, because this is a $1,000 stock easily in 5 years. I'll send you a report giving you all the details of why. Detroit is basically screwed, someday it’ll just be reduced to building Teslas under license from Tesla and painting them different colors and giving them different names or something like that.

Q: What’s a buy-on-dip?

A: Sorry, but no easy answer here. It’s unique to every stock depending on the historic volatility and ranges of the stock. It’s going to be 1% for a stock, it can be 10% for an option, it could be 20% for a stock like Tesla. It’s vague but it really is unique to every single stock. A good rule of thumb is that after you execute a trade and then throw up on your shoes you’ve just done a great trade.

Q: I see from your pictures that you lost weight? How do you do it?

A: I got COVID last May. I lost 20 pounds in two weeks because I couldn’t eat while I was sleeping 20 hours a day. I just woke up long enough to send out trade alerts. All of a sudden, a 40-year collection of expensive designer pants fit. My kids now call me Captain Fancy Pants. When I go through airport security now and take my belt off they fall down so I’m always careful to wear my best underwear, the ones with the dollar sing all over them.

Q: What’s the best way to play obesity drugs?

A: Unfortunately, There is no pure play on obesity drugs. It will be a $150 billion market that will grow very quickly. I will talk about it at length next week in the summit at the Biotech & Health Care webinar, which you’ll get registration links for tomorrow. Weight loss drugs are small pieces of very large drug companies, so the effect gets diluted by everything else they’re doing. The purest play may be Weight Watchers (WW). If you just need to go to Weight Watchers just to get a shot, that could be really good for them. The stock just doubled in one day on this.

Q: Commodity-based foreign stocks are the best bet on inflation protection; should I get involved?

A: Yes, use the current selloff to get into the whole commodity space (except for maybe food) because not only are they a commodity play, they’re a weak dollar play and that way you get a combined double leverage effect on prices, which I've seen happen many times in my life. So yes, look at foreign-type commodity stocks, and of course, the biggest one out there is Broken Hill Proprietary (BHP), which I always watch very closely. It’s the largest stock in Australia owned by virtually everybody in Australia who has any money, with great volatility, and which has recently just had a selloff.

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, or TECHNOLOGY LETTER, 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

2015 in Ouarzazate Morocco

The Market Outlook for the Week Ahead, or Making a Silk Purse from a Sow’s Ear

Diary, Free Research, Newsletter

Call this the Dr. Jekyll and Mr. Hyde market.

On the up days, we see the kindly ministrations of Dr. Jekyll.

On the down days, we suffer from the evil hand of Mr. Hyde.

To say that traders are confused would be an understatement. Many seasoned pros have told me that this is one of the most difficult markets they have ever seen.

Fridays have been particularly treacherous when weekly options expire. Some 56% of all options trading now takes place with expirations of five days or less. Trading before 4:00 PM sees billions of dollars of hot money trying to force closing prices just in or out of the money for key at-the-money strike prices.

What is especially disturbing is that some 80% of the gain in the S&P 500 (SPY) this year has been in just seven names, Meta, (META), Alphabet (GOOGL), Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Tesla (TSLA). Most other stocks went nowhere….or down. That much concentration means that any rallies lack confidence and will fail….for now.

Remember these names because when we finally do get a real upside breakout, they will be the leaders. You can take that to the bank.

Thanks to turmoil in the House of Representatives intent on a national default, bonds have given up 70 of the 120-basis point drop in yields since October. That deprives us of one of our biggest money makers of 2022, our long bond trades.

That means were are also seeing the automatic flip side of the bond trade, a strong US Dollar (UUP), and weak precious metals, (GLD) and (SLV), and emerging markets (EEM).

This too shall end.

If it was excess liquidity that caused stocks to rocket for 13 years, then maybe we should be focusing on what little liquidity is left. That would be the font of government money pouring into infrastructure and alternative energy plays.

Some $370 billion I know available for investment in ESG, would most of it going into the battery industry for the burgeoning electric vehicle industry. Even foreign firms like Finland’s Neste is moving to the US to cash in on federal munificence, converting an old US oil refinery to produce diesel fuel out of animal and vegetable fat (click here for the link).

Probably the best bet here is in California-based Enphase Energy (ENPH), which makes a 40% gross profit margins on microinverters for solar panels and has just seen a 42% dive in its share price. That makes (ENPH) a BUY. Hint: solar stocks always follow the price of oil to which it is tied, which has lately been down.

Some nimble and aggressive trading managed to push me back in the green for February, taking me up +0.93% on the month. That’s a dramatic improvement of +5.48% from a week ago.

You might even call it making a silk purse from a sow’s ear.

My 2023 year-to-date performance is still at the top at +23.28%. The S&P 500 (SPY) is up +4.32% so far in 2023. My trailing one-year return maintains a sky-high +86.58% versus -12.97% for the S&P 500.

That brings my 15-year total return to +620.47%, some 2.78 times the S&P 500 (SPX) over the same period. My average annualized return has recovered to +46.83%, still the highest in the industry.

Last week, I piled on a Tesla (TSLA) March $155-$260 short strangle betting that the stock can stay within a $95 range for 19 trading days. I also added a deep in-the-money long in the bond market for the first time in six weeks. Both positions turned immediately profitable.

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. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

Q4 GDP Dips, from 3.9% to 2.7% in the October-December quarter. Consumption took a dive, which is amazing over the holidays. This is nowhere near a recession.

Fed Minutes Show More Hikes to Come, with the emphasis on the plural. That could take the overnight borrowing rate to a 5.40% high. It certainly pees on the parade for the falling interest rates crowd.

The Tail is Wagging the Dog, with short, dated options, often same-day expiration dominating trading every Friday. Billions of dollars are battling around key strike prices attempting to force expirations in or out of the money. No place for the little guy. Better to take Fridays off.

Netflix Slashes Prices in 30 countries, taking the stock down a modest 3%. (NFLX) is still the leader in the sector with 231 million subscribers, followed by Amazon (200 million), Disney Plus (162 million, HBO Max (95 million, Peacock (18 million), and Hulu 47 million). Buy (NFLX) and (AMZN) on dips.

Individual 401k’s Lost 23% in 2022, according to a study from Fidelity. High inflation is shrinking the remaining purchasing power even faster. A rising number of workers are also borrowing against their 401k’s to make ends meet. Such loans can go up to 50% of the principal. Better start making up the losses or you’ll be spending your golden years working at Taco Bell.

Apple to Add Glucose Monitor on its Watches, to aid diabetic clients. Some 38 million Americans have diabetes and given the obesity epidemic that figure is certain to rise. It highlights Big Tech’s move into the low-hanging fruit in health care.

Existing Home Sales Dive 0.7% in January, to a 4 million annualized rate, the weakest since October 2010. That makes 12 consecutive months of falling sales. The Median Home Price sold rose to $359,000. An imminent national debt crisis and spiking interest rates is not a great environment in which to sell your home.

Biden Ukraine Visit Tanks Gas and Oil Prices, cutting Russia’s chances of a win and eventually leading to a flood of oil on the market. Biden’s visit is sending the message to Putin that there’s no chance of a win here. Energy is hitting two-year lows across the board. Only energy stocks are staying high. Energy is getting so cheap it might be worth a trade.

Germany Accelerates Move Towards Alternatives, permanently cutting all ties with Russia energy. Europe’s biggest economy, and the fourth largest in the world, hopes to get 80% of its electricity from solar and wind by 2030. Hydrogen is also entering the picture. Other countries will follow.

On Monday, February 27 at 8:30 AM EST, US Durable Goods are out.

On Tuesday, February 28 at 9:00 AM, the S&P Case Shiller National Home Price Index for December is released.

On Wednesday, March 1 at 10:00 AM, the ISM Manufacturing PMI is printed.

On Thursday, March 2 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, March 3 at 8:30 AM, the ISM Non-Manufacturing PMI. At 2:00 the Baker Hughes Oil Rig Count is out.

As for me, I usually get a request to fund some charity about once a day. I ignore them because they usually enrich the fundraisers more than the potential beneficiaries. But one request seemed to hit all my soft spots at once.

Would I be interested in financing the refit of the USS Potomac (AG-25), Franklin Delano Roosevelt’s presidential yacht?

I had just sold my oil and gas business for an outrageous profit and had some free time on my hands so I said, “Hell Yes,” but only if I get to drive. The trick was to raise the necessary $5 million without it costing me any money.

To say that the Potomac had fallen on hard times was an understatement.

When Roosevelt entered the White House in 1932, he inherited the presidential yacht of Herbert Hoover, the USS Sequoia. But the Sequoia was entirely made of wood, which Roosevelt had a lifelong fear of. When he was a young child, he nearly perished when a wooden ship caught fire and sank, he was passed to a lifeboat by a devoted nanny.

Roosevelt settled on the 165-foot USS Electra, launched from the Manitowoc Shipyard in Wisconsin, whose lines he greatly admired. The government had ordered 34 of these cutters to fight rum runners across the Great Lakes during Prohibition. Deliveries began just as the ban on alcohol ended.

Some $60,000 was poured into the ship to bring it up to presidential standards and it was made wheelchair accessible with an elevator, which FDR operated himself with ropes. The ship became the “floating White House,” and numerous political deals were hammered out on its decks. Some noted guests included King George VI of England, Queen Elisabeth, and Winston Churchill.

During WWII Roosevelt hosted his weekly “fireside chats” on the ship’s short-wave radio. The concern was that the Germans would attempt to block transmissions if broadcast came from the White House.

After Roosevelt’s death, the Potamac was decommissioned and sold off by Harry Truman, who favored the much more substantial 243-foot USS Williamsburg. The Potamac became a Dept of Fisheries enforcement boat until 1960 and then was used as a ferry to Puerto Rico until 1962.

An attempt was made to sail it through the Panama Canal to the 1962 World’s Fair in Seattle, but it broke down on the way in Long Beach, CA. In 1964 Elvis Presley bought the Potomac so it could be auctioned off to raise money for St. Jude Children’s Research Hospital. It sold for $65,000. It then disappeared from maritime registration in 1970. At one point there was an attempt to turn it into a floating disco.

In 1980 a US Coast Guard cutter spotted a suspicious radar return 20 miles off the coast of San Francisco. It turned out to be the Potomac loaded to the gunnels with bales of illicit marijuana from Mexico. The Coast Guard seized the ship and towed it to the Treasure Island naval base under the Bay Bridge. By now the 50-year-old ship was leaking badly. The marijuana bales soaked up the seawater and the ship became so heavy it sank at its moorings.

Then a long rescue effort began. Not wanting to get blamed for the sinking of a presidential yacht on its watch the Navy raised the Potomac at its own expense, about $10 million, putting its heavy lift crane to use. It was then sold to the City of Oakland, Ca for a paltry $15,000.

The troubled ship was placed on a barge and floated upriver to Stockton, CA, which had a large but underutilized unionized maritime repair business. The government subsidies started raining down from the skies and a down-to-the-rivets restoration began. Two rebuilt WWII tugboat engines replaced the old, exhausted ones. A nationwide search was launched to recover artifacts from FDR’s time on the ship. The Potomac returned to the seas in 1993.

I came on the scene in 2007 when the ship was due for a second refit. The foundation that now owned the ship needed $5 million. So, I did a deal with National Public Radio for free advertising in exchange for a few hundred dinner cruise tickets. NPR then held a contest to auction off tickets and kept the cash (what was the name of FDR’s dog? Fala!).

I also negotiated landing rights at the Pier One San Francisco Ferry Terminal, which involved negotiating with a half dozen unions, unheard of in San Francisco maritime circles. Every cruise sold out over two years, selling 2,500 tickets. To keep everyone well-lubricated I became the largest Bay Area buyer of wine for those years. I still have a free T-shirt from every winery in Napa Valley.

It turned out to be the most successful fundraiser in the history of NPR and the Potomac. We easily got the $5 million and then some. The ship received a new coat of white paint, new rigging, modern navigation gear, and more period artifacts. I obtained my captain’s license and learned how to command a former coast guard cutter.

It was a win-win-win.

I was trained by a retired US Navy nuclear submarine commander, who was a real expert at navigating a now thin-hulled 73-year-old ship in San Francisco’s crowded bay waters. We were only licensed to cruise up to the Golden Gate bridge and not beyond, as the ship was so old.

The inaugural cruise was the social event of the year in San Francisco with everyone wearing period Depression-era dress. It was attended by FDR’s grandson, James Roosevelt III, a Bay area attorney who was a dead ringer for his grandfather. I mercilessly grilled him for unpublished historical anecdotes. A handful of still-living Roosevelt cabinet members also came, as well as many WWII veterans.

As we approached the Golden Gate Bridge, some poor soul jumped off and the Coast Guard asked us to perform search and rescue until they could get a ship on station. No body was ever found. It certainly made for an eventful first cruise.

Of the original 34 cutters constructed only four remain. The other three make up the Circle Line tour boats that sail around Manhattan several times a day.

Last summer I boarded the Potomac for the first time in 14 years for a pleasant afternoon cruise with some guests from Australia. Some of the older crew recognized me and saluted. In the cabin, I noticed a brass urn oddly out of place. It contained the ashes of the sub-commander who had trained me all those years ago.

Good Luck and Good Trading,

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

Captain Thomas at the Helm

February 14, 2023

Diary, Newsletter, Summary

Global Market Comments
February 14, 2023
Fiat Lux

Featured Trade:

(WHERE THE ECONOMIST “BIG MAC” INDEX FINDS CURRENCY VALUE TODAY),
(UUP), (FXE), (FXY), (CYB)

CLICK HERE to download today's position sheet.

Where the Economist “Big Mac” Index Finds Currency Value Today

Diary, Newsletter, Research

My former employer, The Economist, once the ever-tolerant editor of my flabby, disjointed, and juvenile prose (Thanks to Peter Martin and Marjorie Deane!), has just released its "Big Mac" index of relative international currency valuations.

Although initially launched as a joke five decades ago, I have followed it religiously and found it an amazingly accurate predictor of future economic success.

The index counts the cost of McDonald's (MCD) premium two beef patty sandwiches around the world, ranging from $8.35 in Venezuela to $1.68 in Lebanon, and comes up with a measure of currency under and overvaluation.

What are its conclusions today?

The Venezuelan Bolivar is wildly expensive, with 235 years of annual per capita income needed to buy a single Big Mac in local currency terms if you can find one. There are currently 4 million Bolivars to the US Dollar in this sadly bankrupt country.

The Norwegian Kroner, Swiss franc (FXF), and the US Dollar (UUP) are also dear, with the average cost of an American Big Mac at $5.35. Every year I make a ritual visit to what is often the most expensive McDonald’s in the world at Zermatt Switzerland (see pictures below). There the Big Macs taste slightly acidic.

The cheapest currencies are the South African Rand, the Russian Ruble, and the Lebanese Pound, a Big Mac coming in at $1.68 in Beirut.

I couldn't agree more with many of these conclusions. It's as if the august weekly publication was tapping The Diary of a Mad Hedge Fund Trader for ideas.

I am no longer the frequent consumer of Big Macs that I once was, as my metabolism has slowed to such an extent that in eating one, you might as well tape it to my ass. Better to use it as an economic forecasting tool than a speedy lunch.

The Big Mac is a Steal Here in Turkey

No Bargain Here in Italy Either

And Costs a King’s Ransome Here in Zermatt

February 10, 2023

Diary, Newsletter, Summary

Global Market Comments
February 10, 2023
Fiat Lux

Featured Trade:

(FEBRUARY 8 BIWEEKLY STRATEGY WEBINAR Q&A),
(RCL), (TSLA), (UUP), ($VIX), (BRKB), (TLT), (TBT), (ROM), (CVNA), (SLV), (DIS)

CLICK HERE to download today's position sheet.

NOTE TO SUBSCRIBERS: There will be no strategy letter for
February 13 and 21 as I will be traveling. - JT

February 8 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the February 8 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: What do you make of the Chinese balloon that crossed the United States last week?

It was the most overhyped, least consequential event in recent memory, and is not a new thing. There is no chance this was an innocent scientific mission as there was no flight plan filed. What’s China’s new frontline weapon? A catapult? A bow and arrow? Are American balloon makers going to demand increased defense spending? Curiously, no mention was ever made of the three Chinese balloons that crossed the US during the previous administration when no action was taken. My guess is that a Chinese Army faction wanted to keep their defense spending rising and torpedoed any rapprochement that was in the works with the US. Another theory was that they wanted to test our response. There is nothing the balloon could have captured that the Chinese didn’t already have from their satellites or even Google Earth for free. The media coverage has been a flood of false information. If the Chinese really can predict global winds at 60,000 feet two weeks in advance, then their math is so far more advanced than our own then we might as well surrender. By the way, during WWII the Japanese sent 20,000 balloons our way in an attempt to set the Western US on fire. Only one exploded, killing a family in Oregon.

Q: I’m getting worried about my long-term LEAPS in (TLT) and (FCX) given the recent market action. Thanks in advance for your help.

A: The (TLT)'s should be OK by expiration because they hit max profit even in an unchanged bond market. But Republican radicals who want a government shutdown at any price are definitely going to rattle your cage. That’s why I currently have no short-term position in bonds and am waiting for a bigger pullback to maybe $101 before I get back in. As for Freeport McMoRan (FCX) you can take profits any time. The stock doubled after we recommended the LEAPS in October. Longer term, I think (FCX) goes to $100 because of a coming global copper shortage.

Q: Should I buy Royal Caribbean (RCL) because we’re looking at a record-breaking cruise season coming up this year?

A: The time to buy Royal Caribbean was actually last June; it was one of the first outperformers in the market, completely skipped the October meltdown, and is practically doubled off the low. So great idea, just 8 months too late. And that actually is the case with a lot of stocks now—they've had such enormous runs over a short time, that you’re taking a lot of risks to get involved here.

Q: Do you think Silicon Valley should force all workers back into the office? Wouldn't that enhance creativity?

A: It does enhance creativity but at the cost of productivity. People are much more productive when they work at home, don’t have to spend 2 hours commuting, and can build their job around their lifestyle. They work at home cheaper too. So, it’s a trade-off, do you want creativity or do you want productivity? Well, the productive people should stay at home, the creative people should go to the office—it’s a company by company, product by product decision.

Q: You say you never touch 2x and 3x ETFs?

A: The only exception to that is the ProShares UltraShort 20+ Year Treasury ETF (TBT) which we traded for 2.5 years while the bonds were making a straight line move down, or the ProShares Ultra Technology ETF (ROM) which tends to have straight up move like this year. And the only time you could do a 2x is if you think the move in the underlying is going to be so enormous it covers up all the costs of dealing in these ETFs, then it’s worth doing. 3xs I never ever touch them because those reset at the end of the day and are really designed to be intraday hedging instruments, which we’re not interested in.

Q: Are you still bearish on the US dollar (UUP)?

A: Absolutely, we’ve had almost a straight line move down ever since October, and we’re getting a temporary break on that while interest rates stay higher for longer. The next dive in interest rates, the dollar collapses once again.

Q: When you buy back into bonds, where in the curve will you be buying?

A: In bull markets, you always want to buy the longest maturity available. Back in the 1970s, I used to buy WWI infinite British Treasury bonds because they had 100-year maturities, and therefore, in any bull market, have the largest gains. In the US, the 30-year instruments are pretty illiquid, so I focus on the 10-year, which is the iShares 20 Plus Year Treasury Bond ETF (TLT).

Q: What could be the next entry point for Tesla (TSLA) LEAPS?

A: I’m afraid that we have left LEAPS land for Tesla, I mean $100, $110, $120, $130—that’s all LEAP territory. Up here? Not unless you want to do a very low return LEAP like a $150/$160. I don’t see Tesla going below $150. Too many people trying to get into the stock, and Elon Musk is a master at delivering short squeezes, which he has done a perfect job of this year.

Q: What do you think about Real Estate Investment Trusts (REITS)?

A: I love REITS. They are a falling interest rate play. Highly exposed to interest rates, highly leveraged, and you get some great performance—and we’ve already had some since October. I think the bear market in real estate ends this year and we get a new bull in housing that starts next year because we still have a chronic structural shortage of housing. We’re missing about 10 million houses that we need—in that situation, prices go up. In fact, there are still bidding wars going on in the prime residential (mostly rural) parts of the country.

Q: Wouldn’t you want to buy at-the-money calls, not spreads in a low Volatility Index ($VIX) market on a 4-6 month view, because of cheaper pricing?

A: Yes you do, but not on top of a record move to the upside. If we can get a pullback in the markets of a1 /3-1/2 of their recent moves, and the ($VIX) is still low, then that makes all the sense in the world, to buy at the money calls with ($VIX) of $17. The only problem is if we give up half the recent gains, you’re not going to have a ($VIX) at $17 anymore, it’ll be more like $27 if we get a pullback like that and options will be expensive again. It’s amazing how cheap upside exposure gets at market tops—that’s what the ($VIX) market is telling you. In other words, it’s a sucker’s bet. You can’t have your cake and eat it too.

Q: What do you think about Alphabet (GOOGL)?

A: It’s overbought like the rest of the stocks in the sector. But the charts are looking very attractive, with an upside breakout of the 200-day. Long-term, they have a killer business model, but they also have antitrust problems. Again, everything is way too overbought for me to get involved on a short-term basis.

Q: What price would you get in at for Berkshire Hathaway (BRK/B)?

A: It’s not selling off, it’s flatlining. So even a small dip like we had yesterday would be a decent place to get into. Long term we’re looking for $400/share for this by the end of this year.

Q: Will strong wage growth lead the Fed to raise interest rates higher?

A: Well they’ve already said essentially they’re going to do 2 more quarter point rises. Beyond that, the Fed itself doesn’t know. When you have interest rates at 10-20 year highs, and 3.4% unemployment. No one has ever seen that before, there is no playbook for what’s happening now—either in the economy or in the stock market. So everyone’s standing around, scratching their heads, trying to figure out what to do, and waiting for more data to come out to give direction. And I’m in the same position really.

Q: Will the US Treasury bond get down to a 2.0% yield by the end of the year?

A: I think it's a possibility but expect a lot of volatility and fears around prospects of a government shutdown this summer and a debt default. Part of the Republican party seems intent on forcing that, and that is not good for bond longs. You get through that, you could have an absolutely ballistic move up in the (TLT), to $120 or even $130.

Q: Would you consider a LEAPS on housing stocks?

A: LEAPS are things you do at multi-year market bottoms, not after 50% moves; and the housing stocks have actually been moving since June; so that was a June story. Buy low, sell high—it’s my revolutionary new concept; most people do the opposite.

Q: Should I invest in Disney (DIS) on a buy it on a Bob Iger turnaround?

A: Yes, but only on a dip; we’ve already had a massive move. If we don’t get a recession, that is fantastic for Disney’s park business.

Q: What is your target for Silver (SLV)?

A: $50/oz. We’re at $20 now. Silver is becoming the new industrial metal, far outstripping any jewelry demand that you used to have; and that’s because of EVs and solar. Who knew that we’re at 10 million homes with solar panels in California now? That is just an enormous number that’s happened mostly in the last five years.

Q: When you look at Natural Gas, would you consider LEAPS?

A: Yes, but I haven’t run the numbers yet. The price has gotten so low, down 80% in eight months that you buy it even if you hate it.

Q: Should I pay attention to demographics when I invest? What is the most important one right now?

A: Demographics are very important, because children born today become customers in 20 years, and companies will start adapting their policies for those customers now in terms of capital investments and so on. It also affects stock markets now. Also, you always want to invest in the country that had the fastest growing population, which used to be China but isn’t anymore. By the way, the reason the US economy has outperformed Europe by 1% a year in GDP growth for the last 70 years is because we allow immigrants, and they don’t. All parties used to be in favor of immigration while now only one is. Why, I don’t understand.

Q: What about a LEAP on Silver (SLV)?

A: That is a possible candidate because we have had a move, but it’s only been about 20%. It’s not like 50% or 100% like we’ve seen with Tesla (TSLA). There are a few asset classes that are still in LEAPS territory—I think Silver would be one of them, and certainly natural gas (UNG). If I were to do a LEAPS, I’d go out 2 years and do something like a $25-$27; the old high is $50. You should get about a 5x leverage on that kind of LEAPS.

Q: Would you buy LEAPS puts on Carvana (CVNA)?

A: Absolutely not. Again, another great one-year-ago idea, not a now idea. Buy Put LEAPS at extreme market tops, not now. Carvana had dropped 95% in the last year.

Q: Is seasonality an important consideration in your trading strategy?

A: Absolutely yes. If you buy stocks in November and do the sell-in-May strategy, your average annual return is something like 20% a year. If you buy stocks in May and sell them in December, the 70-year return on that is zero. I love having the tailwind of seasonality; I can’t remember seeing it when it didn’t work. It’s an important consideration, and we’re right in the middle of the “BUY” season and the market is agreeing with me.

Q: You should do a LEAPS letter.

A: I already do in fact do a LEAPS letter, and it’s called the Mad Hedge Concierge Service where we have a whole website dedicated to just LEAPS. Some ten out of 12 made money last year, and some went up 10X. Contact customer support at support@madhedgefundtrader.com if you’re interested. Concierge members are very happy with their LEAPS coverage.

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 or TECHNOLOGY LETTER, 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

At 29 Palms in my M1 Abrams Tank in 2000

January 30, 2023

Diary, Newsletter, Summary

Global Market Comments
January 30, 2023
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or MY NEW THEORY OF EQUITIES)
(TSLA), (SPY), (TLT), (TSLA), (OXY), (UUP), (AAPL), ($VIX)

CLICK HERE to download today's position sheet.

The Market Outlook for the Week Ahead, or My New Theory of Equities

Diary, Newsletter

After 54 years of trading, and 60 if you count my paper boy days, I have never seen the conventional wisdom be so wrong about the markets.

There was near universal sentiment that we would crash come January. Instead, with have only seen four down days this year. The shorts got slaughtered.

So it’s clear that something brand new is going on here in the markets. I call it “My New Theory of Equities.”

I always have a new theory of equities. That’s the only way to stay ahead of the unwashed masses and live on the cutting edge. After all, I don’t have to run faster than the bear, just faster than the competition to keep you making money.

So here is my new theory.

Many strategists are bemoaning the loss of the free money that zero interest rates made available for the last decade. They are convinced that we will never see zero interest rates again.

But guess what? Markets are acting like free money is about to return, and a lot faster than you think. Free money isn’t gone forever, it is just taking a much-needed vacation.

What if free money comes from somewhere else? You can forget about free money from the government. Fear of inflation has ended that source, unless we get another pandemic, which is at least a decade off.

No, I found another source of free money, and that would be exponentially growing technology profits. Those who don’t live in Silicon Valley are ignorant of the fact that technology here is hyper accelerating and tech companies are becoming much more profitable.

You know those 80,000 tech workers who just got laid off? They all averaged two job offers each from the thousands of startup companies operating from garages and extra bedrooms all around the Bay Area. As a result, the Silicon Valley unemployment rate is well under 2%, nearly half the national average.

I bet you didn’t know that there are over 100 industrial agricultural startups here growing food in indoor ultraviolet lit lowers. It turns out that these use one tenth of the inputs of a conventional input, like water and fertilizer in half the time.

There are hundreds of solar startups in play, many venture capital financed by Saudi Arabia. While the kingdom has a lot of oil, they have even more sunshine. And what are they going to do with all that oil? Use solar generated electricity to convert it to hydrogen to sell to us as “green” energy.

Solar itself will just be a bridge technology to fusion, which you may have heard about lately. What happens when energy becomes free? It boggles the mind. This appears to be a distant goal now. But remember that we went from atomic bombs to nuclear power plants in only 12 years, the first commercially viable one supplying electricity to Pittsburgh in 1957 (click here for the link).

The future happens fast, far faster than we realize. Always.

Here is another anomaly for you. While these massive tech layoffs have been occurring, Weekly Jobless Claims have plunged to a two-year low from 240,000 to only 186,000.

That is because tech workers aren’t like you and me. When they get laid off the first thing, they do is cheer, then take a trip to Europe. They are too wealthy to qualify for unemployment benefits, so they never apply. When they get home, they immediately get new jobs that pay more money with extra stock options.

I know because I have three kids working in Silicon Valley and enjoy a never-ending stream of inside dope.

This means that you need to be loading the boat with tech stocks on every major dip for the rest of your life, or at least my life. The profit opportunities are exponential.

This creates a new dilemma.

You can pick up the easy doubles and triples now just though buying listed companies. But many of the hundred and thousand baggers haven’t even been created yet. That’s where newly unemployed tech workers are flocking to. That’s where you’ll find the next Tesla (TSLA) at $2 trade.

How will you find those? Don’t worry, that’s my job. After all, I found the last Tesla at $2, minting many new millionaires along the way.

My trading performance certainly shows the possibilities of this My New Theory of Equities, which so far in January has tacked on a robust +19.94%. My 2023 year-to-date performance is the same at +19.94%, a spectacular new high. The S&P 500 (SPY) is up +7.32% so far in 2023.

It is the greatest outperformance on an index since Mad Hedge Fund Trader started 15 years ago. My trailing one-year return maintains a sky-high +95.09%.

That brings my 15-year total return to +617.13%, some 2.66 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +46.87%, easily the highest in the industry.

Last week, I took profits on my longs in Tesla (TSLA) and Occidental Petroleum (OXY). That leaves me 90% in cash, with one lonely 10% short in the (QQQ). Markets are wildly overextended here; the Volatility Index ($VIX) is at a two-year low at $18, and my own Mad Hedge Market Timing Index is well into “SELL” territory at 70.

My invitation on the long side is wearing thin.

And while I’m at it, let me introduce one of my favorite secret economic indicators.

I call it the “Flat Tire Indicator”.

It goes something like this. The stronger the economy, the more trucks you have driving to new construction sites to build factories and homes. That means more trucks wearing out the roads, creating more potholes, and bouncing more nails out the back.

Tadah! You get more flat tires.

I am not citing this as some Ivory Tower, pie-in-the-sky academic theory. I spent the morning getting a flat tire on my Tesla Model X fixed. This wasn’t just any old tire I could pick up on sale at Big O Tires. It was a Pirelli Scorpion Zero 265/35 R22 All Season staggered racing tire.

Still, Tesla did well. From the time I typed in my request on the Tesla app on my smartphone to the time the repair was completed at my home, only 45 minutes had elapsed.

Still, $500 for a tire Elon? Really?

Elon Musk Ambushed the shorts, with a Massive Short Squeeze Hitting Tesla, up 80% in three weeks and far and away the top-performing major stock of 2023. Tesla now accounts for an incredible 7% of the entire options market. Bearish hedge funds are panicking. It’s dragging the rest of big tech with it. I think we are due for a rest around the Fed interest rates decision in three days. I warned you about an onslaught of good news coming out about Tesla. It has arrived!

Will This Week See the Last Interest Rate Hike, in this cycle on February 1? That’s what stocks seem to be discounting now, with the major indexes up almost every day this year. And even next week may only deliver a 25-basis point hike.

The Fed’s Favorite Inflation Indicator Fell in December, Core PCE up only 4.4% YOY. It’s fanned the tech flames for a few more days. The University of Michigan is calling for only 3.9%.

Q4 GDP is Up 2.9%, far higher than expected. This is becoming the recession that may not show. New car sales went ballistic and there were huge orders for Boeing. Bonds sold off on the news.

Recession Risk Falls, from a 98% probability to only 73% according to an advanced model from JP Morgan Bank. Other models say it’s dropped to only 50%. A soft landing is now becoming the conventional view. The view is most clearly seen in high-yield bonds which have recently seen interest rates plunge. This may become the recession that never happens.

Tech Layoffs Top 75,000, or 2% of the tech workforce. Most get two job offers on hitting the street from the thousands of garage startups percolating in San Francisco Bay Area garages, taking the Silicon Valley unemployment rate below 2%. All tech is losing is the froth it picked up during the pandemic. As I tell my kids, you want to work in the industry where 2% of the US population spin off 35% of America’s profits. Buy big tech on the coming dips.

Tesla Price Cuts Crush the EV Industry, in a clear grab by Elon for market share, already at 65% globally. Teslas are now the cheapest EVs in the world on a per mile basis, and with the new federal subsidies they now qualify for the discount rises to 35%. (GM), (F), and Volkswagen can’t match the cuts because they are already hemorrhaging money on EVs and lack the parts to appreciably boost production. Keep buying (TSLA) on dips, which is up $8 this morning.

Tesla Beats, on both earnings and guidance. It’s looking for 1.8 million vehicles sold in 2023 versus 2022 sales of 1.31 million. Elon is still planning on 50% annual growth over the foreseeable future. The shares jumped an incredible 12% on the news. The Cybertruck will roll out at the end of this year, and I am on the list. The recent price cuts were hugely successful, killing the EV competition, and could take 2023 production to 2 million. It all makes (TSLA) a strong buy and long-term hold on the next $20 dip.

China is Taking Over the Auto World and is the only country that outsold the US in EVs. The Middle Kingdom exported more than 2.5 million cars last year, taking it just behind Germany. The country is targeting 8 million exports by 2030, double Japan’s. What is not said is that most of these will go to low waged emerging countries without auto regulations, safety standards, or even laws. No Chinese cars were sold in the US, far and away the world’s largest market at 15 million units last year in a global market of 67.6 million.

Pending Home Sales Jump in December, up 2.5%, providing more green shoots for the real estate market. This is on a signed contracts-only basis, the best in 14 months. The January numbers will get a huge boost from dramatically lower mortgage rates.

My Ten-Year View

Dow 240,000 here we come!

On Monday, January 30 a6 7:30 AM EST, the Dallas Fed Manufacturing Index is announced. NXP Semiconductor (NXPI) reports.

On Tuesday, January 31 at 6:00 AM, the S&P Case Shiller National Home Price Index is updated. Caterpillar (CAT) reports.

On Wednesday, February 1 at 7:00 AM EST, the JOLTS Private Sector Job Openings are released. The Fed Interest Rate Decision is disclosed. Meta (META) reports.

On Thursday, February 2 at 8:30 AM EST, the Weekly Jobless Claims are announced. Apple (AAPL), Amazon (AMZN), and Alphabet (GOOGL) report.

On Friday, February 3 at 8:30 AM EST, the January Nonfarm Payroll Report is printed. Regeneron (REGN) reports.

At 2:00 the Baker Hughes Oil Rig Count is out.

As for me, when Anne Wijcicki founded 23andMe in 2007, I was not surprised. As a DNA sequencing pioneer at UCLA, I had been expecting it for 35 years. It just came 70 years sooner than I expected.

For a mere $99 back then they could analyze your DNA, learn your family history, and be apprised of your genetic medical risks. But there were also risks. Some early customers learned that their father wasn’t their real father, learned of unknown brothers and sisters, that they had over 100 brothers and sisters (gotta love that Berkeley water polo team!) and other dark family secrets.

So, when someone finally gave me a kit as a birthday present, I proceeded with some foreboding. My mother spent 40 years tracing our family back 1,000 years all the way back to the 1086 English Domesday Book (click here).

I thought it would be interesting to learn how much was actually fact and how much fiction. Suffice it to say that while many questions were answered, alarming new ones were raised.

It turns out that I am descended from a man who lived in Africa 275,000 years ago. I have 311 genes that came from a Neanderthal. I am descended from a woman who lived in the Caucuses 30,000 year ago, which became the foundation of the European race.

I am 13.7% French and German, 13.4% British and Irish, and 1.4% North African (the Moors occupied Sicily for 200 years). Oh, and I am 50% less likely to be a vegetarian (I grew up on a cattle ranch).

I am related to King Louis XVI of France, who was beheaded during the French Revolution, thus explaining my love of Bordeaux wines, Chanel dresses, and pate foie gras.

Although both my grandparents were Italian, making me 50% Italian, I learned there is no such thing as a pure Italian. I come it at only 40.7% Italian. That’s because a DNA test captures not only my Italian roots, plus everyone who has invaded Italy over the past 250,000 years, which is pretty much everyone.

The real question arose over my native American roots. I am one sixteenth Cherokee Indian according to family lore, so my DNA reading should have come in at 6.25%. Instead. It showed only 3.25% and that launched a prolonged and determined search.

I discovered that my French ancestors in Carondelet, MO, now a suburb of Saint Louis, learned of rich farmland and easy pickings of gold in California and joined a wagon train headed there in 1866. The train was massacred in Kansas. The adults were massacred, and all the young children adopted into the tribe, including my great X 5 Grandfather Alf Carlat and his brother, then aged four and five.

When the Indian Wars ended in the 1870s, all captives were returned. Alf was taken in by a missionary and sent to an eastern seminary to become a minister. He then returned to the Cherokees to convert them to Christianity. By then Alf was in his late twenties so he married a Cherokee woman, baptized her, and gave her the name of Minto, as was the practice of the day.

After a great effort, my mother found a picture of Alf & Minto Carlat taken shortly after. You can see that Alf is wearing a tie pin with the letter “C” for his last name of Carlat. We puzzled over the picture for decades. Was Minto French or Cherokee? You can decide yourself.

Then 23andMe delivered the answer. Aha! She was both French and Cherokee, descended from a mountain man who roamed the western wilderness in the 1840s. That is what diluted my own Cherokee DNA from 6.50% to 3.25%. And thus, the mystery was solved.

The story has a happy ending. During the 1904 World’s Fair in St. Louis (of Meet me in St. Louis fame), Alf, then 46 placed an ad in the newspaper looking for anyone missing a brother from the 1866 Kansas massacre. He ran the ad for three months and on the very last day his brother answered and the two were reunited, both families in tow.

Today, it costs $169 to get you DNA analyzed, but with a much larger data base it is far more thorough. To do so click here at https://www.23andme.com

My DNA has Gotten Around

It All Started in East Africa

1880 Alf & Minto Carlat, Great X 5 Grandparents

My New Coincident Economic Indicator

January 27, 2023

Diary, Newsletter, Summary

Global Market Comments
January 27, 2023
Fiat Lux

Featured Trade:

(JANUARY 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(RIVN), ($VIX), (SPX), (UUP), (NVDA), (TLT), (LLY), (AAPL), (RTX), (LMT), (USO), (OXY), (TSLA), (UNG), (MSFT)

CLICK HERE to download today's position sheet.

January 25 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the January 25 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: What do you think about LEAPS on Rivian (RIVN)?

A: Yes, I would do those, but a smaller position with closer strike prices. Go to the maximum maturity 2 years out and be conservative—bet on only a 50% rise in the stock. I’m sure it’ll double, but with the LEAPS you’ll have tremendous upside leverage, like 10 to 1, so don’t get greedy. Go for the 500% profit in 2 years rather than the 1,000%, because it is still a startup, and we need economic recovery for startups to get traction. If anything, Tesla (TSLA) will drag this stock back up as it dragged it down. They all move together.

Q: What’s the number of contracts on your $100,000 model portfolio?

A: Our model portfolio basically assumes we have 10 positions of $10,000 each totaling $100,000 in value. You can then change the number of contracts to suit your own private portfolio—take on as much or as little risk as you want. If you’re new. I recommend trading on paper first to make sure you can make money before you use the real thing.

Q: I’m new to this service. What’s the difference between the long-term portfolio and the short-term portfolio?

A: A long term portfolio is a buy-and-forget portfolio, with maybe a 5- or 10-year view. We only change it and make adjustments twice a year so we can average back into the new positions and take profits on the old ones. The main part of this service is usually front-month, and that’s where we take advantage of anomalies in the options market and market timing to make profits 95% of the time. And a big part of the short-term portfolio is cash; we often go 100% cash when there are no trades to be had. It’s actually more valuable knowing when not to trade than when to trade. If you have any more questions, just email customer support at support@madhedgefundtrader.com and we’ll address them individually.

Q: Is it time for a CBOE Volatility Index ($VIX) trade?

A: I hate trading ($VIX). I only do it from the short side; when you get down to these low levels it can flatline for several months, and the time decay eats you to death. I only do it from the short side, and then only the 5% of the time that we’re peaking in ($VIX). The big money is made on the short side, that’s how virtually the entire options trading industry trades this.

Q: Would you be loading up with LEAPS in February?

A: No, it’s the worst time to do LEAPS. You do LEAPS at long-term market bottoms like we had in October, and then we issued 12 different LEAPS. If you get a smaller pullback, there may be LEAPS opportunities, but only in sectors that are near all-time lows, like gold or silver. It depends on the industry and where we are in the market, but basically, you’re looking to do LEAPS at lows for the year because the leverage is so enormous, and so are the potential profits.

Q: Is the increasing good performance a result of your artificial intelligence? Learning from past mistakes?

A: Partly yes, and partly my own intelligence is improving. Believe it or not, when you go from year 54 to 55 in experience in the markets, you understand a lot more about the markets. Sometimes you just get lucky being on the right side of black swan events. Of course, knowing when the market is especially sensitive and prone to black swans is also a handy skill to have.

Q: Is it too late to get into Freeport McMoRan (FCX)?

A: Yes, I wouldn’t touch (FCX) until we get at least a $10 selloff, which we may get in February, so I think the long term target for (FCX) is $100. The stock has nearly doubled since the LEAPS went out in October from $25 a share to almost $50, so that train has left the station. Better off to wait for the next train or find another stock, there are a lot of them.

Q: Where do you park cash in the holding pattern?

A: Very professional hedge fund managers buy 90-day T-bills, because if you keep your cash in your brokerage account—their cash account—and they go bankrupt, it’ll take you 3 years to get your money back in a bankruptcy proceeding. If you own 90-day T-bills and your broker goes bankrupt, they’re required by law to just hand over the T-bills to you immediately. You take delivery of the T-bills, you park them at another brokerage house, and you keep them there. There is no loss of the use of funds.

Q: What about Long term US dollar (UUP)?

A: We go down for 10 years. Falling interest rates are poison for a currency; our rates are probably going to be falling for the next several years.

Q: Thoughts on Tesla (TSLA)?

A: Short term way overbought, we almost got up 60% from the low in weeks, but that’s Tesla, that’s just how it trades. It is the best performing major stock in the market this year. I wouldn’t be looking to go back into it until we drop back, give up half of that gain, get back down to about $135—then it would be a good options trade and a good LEAPS.

Q: Would you be taking profits in Nvidia (NVDA)?

A: I would take like half here and look to buy it back on the next dip because I think Nvidia’s got higher highs ahead of it.

Q: I can’t get a password for the website.

A: Please contact customer support on the homepage and they will set you up immediately. If not, you can call them at (347) 480-1034.

Q: Would you be selling long term positions?

A: No I would not, because if you sell a long term position they’re very hard to get back into; and I’m expecting $4,800 in the (SPX) by the end of the year. Everything goes up by the end of the year, even things you hate. So no, selling is what you did a year ago, now you’re basically looking for chances to get back in.

Q: Would you hold Tesla (TSLA) over this earnings report?

A: No, I sold my position yesterday, at 70% of its maximum potential profit. I don't need substantial selloff; I’m just going to go right back in again.

Q: Have you heard anything about Tesla silicon roof tiles tending to catch fire?

A: No I have not, but if your house got struck by lightning or if someone fired a bullet at it, that might do the trick. Otherwise, you need a huge input of energy to get silicon to catch on fire as it’s a pretty stable element. And if it was already happening on a large scale, you know the media would be absolutely all over it—the media loves to hate Tesla and loves to hate Elon Musk. That certainly would draw attention if it were happening; what's more likely is that fake news is spreading rumors that are not true. That's been a constant problem with Tesla from the very beginning.

Q: Would you open the occidental spread here today?

A: I would, but I would use strike prices $5 lower. I'd be doing the February $50-$55 vertical bull call spread to give yourself some extra protection, given that the general market itself is so high.

Q: Should I be shorting Apple (APPL) here?

A: No, but the smart thing to do is to sell the $160 calls because I don’t think we’ll get up to $160. You could take any extra premium income, and if you don’t get hit this month, keep doing it every month until you are hit, and then you can take in quite a lot of premium income by the time we get to new highs in Apple, possibly as much as $10 or $15. So, that would be a smart thing to do with Apple.

Q: What's your favorite in biotech and big pharma?

A: Eli Lilly (LLY), which just doesn't seem to let anybody in.

Q: If China were to shut down again, would it hurt the stock market?

A: Yes, but not much. The much bigger falls would be in Chinese stocks (which have already doubled since October) not ours.

Q: Thoughts on biotech?

A: Biotech is the new safety trade that will continue. Also, they’re having their secular ramp-up in technology and new drugs so that is also a good long-term bull call on biotech.

Q: What’s the dip in iShares 20+ Year Treasury Bond ETF (TLT)?

A: $4 points at a minimum, $5 is a nice one, $6 would be fantastic if you can get it.

Q: Could we get a trade-up in oil (USO)?

A: Yes, maybe $5 or $10 a barrel. But it’s just that, a trade. Long term, oil still goes to zero. Short term, China recovery gives a move up in oil and that's why we went long (OXY).

Q: You talk about California NatGas being dead, but California gets 51% of its electricity from natural gas, up from 48% in 2018.

A: Yes, but that counts all of the natural gas that gets brought in from other states. In fact, if you look at the longer-term trend over the last 20 years, coal has gone to zero, nuclear is going to zero, hydro has remained the same at about 10%. NatGas has been falling and green sources like wind and solar, have been rising quite substantially. And now, approximately 25% of all the homes in California get solar energy, or 8.4 million homes, and it is now illegal to put gas piping into any new construction. New York is doing the same. That means it will be illegal to do new natural gas installations in a third of the country. So, I think that points to lower natural gas consumption, and in fact, the 22-year target is to take it to zero, which might be optimistic but you never know. All they need is a smallish improvement in solar technology, and that 100% from green sources is doable by 2045, not only for California but for everybody. All energy plays are a trade only, not an investment.

Q: Any thoughts on the implications for the US and Germany providing tanks to Ukraine?

A: You can throw Poland in there, which is also contributing a tank division—so a total of 58 M1 Abrams tanks are going to Ukraine. By the way, I did command a Marine Corps tank battalion for two weeks on my reserve duty, so I know them really well inside and out. They are powered by a turbine engine, have a suspension as soft as a Cadillac, a laser targeting system accurate to three miles even for beginners, and fire recycled uranium shells that can cut through anything like a knife through butter. The answer is the war gets prolonged, and eventually forces Russia into a retreat or a negotiation. Even though the M1 is an ancient 47-year-old design, its track record against the Russian T72 is pretty lopsided. In the first Gulf War, the US destroyed 5,000 T72s and the US lost one M1 tank because he parked on a horizon, which you should never do with a tank. And every driver of a T72 knows that track record. So that explains why Russian tanks have been running out of gas, sugaring their gas tanks, sabotaging their diesel engines, and doing everything they can to avoid combat because of massive fatal design flaws in the T72. We only need to provide about 50 or 60 of the M1 tanks as a symbolic gesture to basically scare the entire Russian tank force away.

Q: Why do you think Elon kept selling Tesla? Did he think it would go lower?

A: Elon thinks the stock’s going to $10,000, but he needed up-front cash to build out six remaining Tesla factories, and for that, he needed about $40 billion, which is why he sold $40 billion worth of stocks last year when it was peaking. He also is sensitive to selling at tops; it’s better to sell stock in with Tesla at an all-time high than at an all-time low, so he clearly times the market to meet his own cash flows.

Q: What about military contractors?

A: I know Raytheon (RTX) and Lockheed Martin (LMT) have a two-year backlog in orders for javelin missiles and stingers, which are now 47-year-old technology that has to be redesigned from scratch. The US just placed an order for a 600% increase in artillery shells for the 155 mm howitzer. I thought we’d never use these again, which is why US stocks for ammunition got so low. But it looks like we have more or less a long term or even permanent customer in Ukraine for everything we can produce, in old Vietnam-era style technologies. How about that? I’m telling the military to give them everything we’ve got because everything we’ve got is obsolete.

Q: When should we buy Microsoft (MSFT)?

A: On the next 10% dip. It’s the quality stock in the US.

Q: Do you place an order to close the spread at profit as soon as you have filled in the trade?

A: You can do that, but it’s kind of a waste of time. Wait until we get close to the strikes; most of the big companies we deal in, you don't get overnight 10% or 20% moves, although it does happen occasionally.

Q: Natural Gas (UNG) prices are collapsing.

A: Correct, because the winter energy crisis in Europe never showed and spring is just around the corner.

Q: On the Tesla (TSLA) LEAPS, what about the January 2025 $600-$610 vertical bull call spread

A: That is way too far out of the money now. I would write that off and go back into it but do something like a January 2025 $180-$190. It has a much higher probability of going in the money, and still an extremely high return. It would be something like 500% if you get in down at these levels.

Q: How do you see Bitcoin short term/long term?

A: I think the loss of confidence in the asset has been so damaging that it may not come back in my lifetime. It could be another Tokyo situation where it takes 30 years to recover, or only recovers when the entire sector gets taken over by the big banks. So, I don’t see any merit in the crypto trade, probably forever. Once you lose confidence in the financial markets, it’s impossible to get it back. And it turns out that every one of these mainline trading platforms was stealing from the customers. No one ever comes back from that in the financial markets.

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 or TECHNOLOGY LETTER, 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

At 29 Palms in my M1 Abrams Tank in 2000