(VXX) Archives - Page 8 of 16 - Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or Trading the Corona Market

It’s time to stockpile food, load up on ammo, and get ready to isolate yourself from the coming Corona Armageddon. If you rely on prescriptions to keep breathing, better lay in a three-month supply. Six months might be better.

At least, that’s what the stock market thinks. That was some week!

Thank goodness it wasn’t as bad as the 1987 crash, when we cratered 20% in a single day, thanks to an obscure risk control strategy called “portfolio insurance” that maximized selling at market bottoms.

In fact, we may have already hit bottom on Friday at Dow 24,681 and S&P 500 (SPX) 2,865.

There are a whole bunch of interesting numbers that converge at the 24,000 Dow Average handle. That is the level where we started the second week of 2019, so we have virtually given up that entire year. If you missed 2019, you get a second chance at the brass ring.

As for the (SPX), as the week’s lows have pulled back exactly to the peaks of twin failed rallies of 2018, right where you would expect major technical support on the long term charts.

And here is something else that is really interesting. If you use the (SPX) price earnings multiple of 16X that prevailed when Trump became president and then add in the 38.62% earnings growth that has occurred since then, you come up with a Dow average of 24,000.

Yes, the market has plunged from a 20X multiple to 16X in a week.

Want more?

If you drop every stock in the market to its 200-day moving average, you get close to a Dow Average of 24,000. I’m talking Apple (AAPL) down to $240, Microsoft (MSFT) cratering to $145. Amazon (AMZN) hit the 200-day on Friday at $1,849.

This means we are well overdue for a countertrend short-covering rally of one-third to two-thirds of the recent loss, or 1,500 to 3,000. That could take the (VIX) back to $20 in a heartbeat. I’ll take any bounce I can get, even the dead cat variety.

What the market has done in a week is backed out the entire multiple expansion that has occurred over the last three years caused by artificially low interest rates and the presidential browbeating of the Federal Reserve.

The fluff is gone.

I have been warning for months that torrid stock market growth against falling corporate earnings growth could only end in tears. And so it did.

Whether the bottom is at 24,000, 23,000, or 22,000, you are now being offered a chance to get off your rear end and pick up at bargain prices the cream of the crop of corporate America, many of which have seen shares drop 20-30% in six trading days.

Stock prices here are discounting a recession that probably won’t happen. That’s what it always does at market bottoms. It’s not a bad time to dollar cost average. Put in a third of your excess cash now, a third in a week, and the last bit in two weeks.

You also want to be selling short the Volatility Index (VIX) big time. With a rare (VIX) level of $50, you can consider this a “free money” trade. Over the last decade, (VIX) has spent only a couple of days close to this level.

Even during the darkest days of the 2008 crash, (VIX) spent only quarter trading between $20 and $50, and one day at $90. That makes one-year short positions incredibly attractive. Get the (VXX) back to last week’s levels and you are looking at 100% to 200% gains on put options very quickly. That’s why I went to a rare double position on Friday.

And then there is the Coronavirus, which I believe is presenting a threat that is wildly exaggerated. If you assume that the Chinese are understating the number of deaths, the true figure is not 3,000 but 30,000. In a population of 1.2 billion that works out to 0.0025%.

Apply that percentage to the US and the potential number of deaths here is a mere 7,500, compared to 50,000 flu deaths a year. And most of those are old and infirm with existing major diseases, like cancer, pneumonia, or extreme obesity.

Thank goodness I’m not old.

Fear, on the other hand, is another issue. Virtually all conferences have been cancelled. A school is closed in Oregon. Most large corporations banned non-essential travel on Friday. Major entertainment areas in San Francisco have become ghost towns. If this continues, we really could scare ourselves into an actual recession, which is what the stock market seemed to be screaming at us last week.

You can forget about the vaccine. It would take a year to find one and another year to mass produce it. They may never find a Corona vaccine. They have been looking for an AIDS vaccine for 40 years without success. So, we are left with no choice but to let nature run its course, which should be 2-3 months. The stock market may fully discount this by the end of this week.

What's disgraceful is the failure of the US government to prepare for a pandemic we knew was coming. I just returned from a two-week trip around Asia and Australia and at every stop my temperature was taken, I was asked to fill out an extensive health questionnaire and was screened for quarantine. When I got back to the US there was nothing. I just glided through the eerily empty immigration.

Most American communities have no Corona tests and have to mail samples to the CDC in Atlanta to get a result. We probably already have thousands of cases here already but don’t know it because there has been no testing. When the stock market learns this, expect more down 1,000-point days.

Where is the bottom? That is the question being asked today by individuals, institutions, and hedge funds around the world. That’s because there are hundreds of billions of dollars waiting on the sidelines left behind by the 2019 melt-up in financial assets. It’s been the worst week since 2008. All eyes are on (SPX) 2,850, the October low and the launching pad for the Fed’s QE4, which ignited stocks on their prolific 16% run. Suddenly, we
have gone from a market you can’t get into to a market you can’t get out of.

How long is this correction? The post-WWII average is four months, but we have covered so much ground so fast that this one may be quicker. We haven’t seen one since Q4 2018, which was one of the worst.

Corona does have a silver lining. Air pollution in China is the lowest in decades, with coal consumption down 42% from peak levels. It’s already starting to return as Chinese workers go back on the job. Call it the “Looking out the Window” Index.

Consumer Confidence was weak in February, coming in at 130.7, less than expected. Corona is starting to sneak into the numbers. Yes, imminent death never inspired much confidence in me.

International Trade is down 0.4% year on year for the first time since the financial crisis. It’s the bitter fruit of the trade war. The coasts were worst hit where trade happens. Trade is clearly in free fall now, thanks to the virus.

The helicopters are revving their engines, with global central banks launching unprecedented levels of QE to head off a Corona recession. Futures market is now pricing in three more interest rate cuts this year, up from zero two weeks ago. Hong Kong is giving every individual $1,256 to spend to stimulate the local economy. The plunge protection team is here! At the very least, markets are due for a dead cat bounce.

Bob Iger Retired from Walt Disney as CEO and will restrict himself to the fun stuff. The stock is a screaming “BUY” down here, with theme parks closing down from the Corona epidemic. Oops, they’re also in the cruise business!

Will the virus delay the next iPhone, and 5G as well? Like everything else these delays, it depends. Missing market could become the big problem. Missing customers too. I still want to buy (AAPL) down here in the dumps down $90 from its high.

The IEA says the energy outlook is the worst in a decade. Structural oversupply and the largest marginal customers mean that we will be drowning in oil basically forever. Avoid all energy plays like the plague. Don’t get sucked in by high yielding master limited partnerships. Don’t confuse “gone down a lot” with “cheap”.

Why is the market is really going down? It’s not the Coronavirus. It’s the Fed ending of its repo program in April, announced in the Fed minutes on February 19. No QE, no bull market. The virus is just the turbocharger. The Fed just dumped the punch bowl and no one noticed. This may all reverse when we get the next update on the Coronavirus.

A surprise Fed rate cut may be imminent, with a 25-basis point easing coming as early as tomorrow. There is no doubt that the virus is demolishing the global economy.

Investment Spending is Falling off a Cliff, with the Q4 GDP Report showing a 2.3% decline. Consumer spending, the main driver for the US economy, is also weakening as if economic data made any difference right now.

I could see the meltdown coming the previous weekend and was poised to hit the market with short sales and hedges. But when the index opened down 1,000, it was pointless. The best thing I could do was to liquidate my portfolio for modest losses. Two days later, that was looking a stroke of genius. This was the first 1,000 dip in my lifetime that I didn’t buy.

I then piled on what will almost certainly be my most aggressive position of 2020, a double weighting in selling short the Volatility Index at $50. Within 30 minutes of adding my second leg, the (VIX) had plunged to $40, earning back nearly half my losses from the week.

The British SAS motto comes to mind: “Who Dares Wins”.

My Global Trading Dispatch performance pulled back by -6.19% in February, taking my 2020 YTD return down to -3.11%. My trailing one-year return is stable at 40.95%. My ten-year average annualized profit ground back up to +34.34%.

With many traders going broke last week or running huge double-digit losses, I’ll take that all day long in the wake of a horrific 4,500 point crash in the Dow Average.

All eyes will be focused on the Coronavirus still, with deaths over 3,000. The weekly economic data are virtually irrelevant now. However, some important housing numbers will be released.

On Monday, March 2 at 10:00 AM, the US Manufacturing PMI for February is out.

On Tuesday, March 3 at 4:00 PM, US Auto Sales for February are released.

On Wednesday, March 4, at 8:15 PM, the ADP Report for private sector employment is announced.

On Thursday, March 5 at 8:30 AM, Weekly Jobless Claims are published.

On Friday, March 6 at 8:30 AM, the February Nonfarm Payroll Report is printed. The Baker Hughes Rig Count follows at 2:00 PM.

As for me, we have just suffered the driest February on record here in California, so I’ll be reorganizing my spring travel plans. Out goes the skiing, in come the beach trips.

Such is life in a warming world.

That’s it after I stop at Costco and load the car with canned food.

John Thomas
CEO & Publisher

February 28, 2020

Diary, Newsletter, Summary

Global Market Comments
February 28, 2020
Fiat Lux

Featured Trade:

(FEBRUARY 26 BIWEEKLY STRATEGY WEBINAR Q&A),
(VIX), (VXX), (SPY), (TLT), (UAL), (DIS), (AAPL), (AMZN), (USO), (XLE), (KOL), (NVDA), (MU), (AMD), (QQQ), (MSFT), (INDU)

February 26 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Summary

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader February 26 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: There’s been a moderation of new coronavirus cases in China. Is this what the market needs to find a bottom?

A: Absolutely it is; of course, the next risk is that cases keep increasing overseas. The final bottom will come when overseas cases start to disappear, and that could be a month or two off.

Q: How low will interest rates go after the coronavirus?

A: Well, interest rates already hit new all-time lows before the virus became a stock market problem. The virus is just giving it a turbocharger. Our initial target of 1.32% for the ten-year US Treasury bond was surpassed yesterday, and we think it could eventually hit 1.00% this year.

Q: What is the best way to know when to buy the dip?

A: When the Volatility Index (VIX) starts to drop. If you can get the volatility index down to the mid-teens and stay there, then the market will stabilize and start to rise fairly sharply. A lot of the really high-quality stocks in the market, like United Airlines (UAL), Walt Disney (DIS), Apple (AAPL) and Amazon (AMZN), have really been crushed by this selloff. So those are the names people are going to look at for quality at a discount. That’s going to be your new investment theme, buying quality at a discount.

Q: Do recent events mean that Boeing (BA) is headed down to 200?

A: I wouldn't say $200, but $280 is certainly doable. And if you get to $280, then the $240/$250 call spread all of a sudden looks incredibly attractive.

Q: What does a Bernie Sanders presidency mean for the market?

A: Well, if he became president, we could be looking at like a 50-80% selloff—at least a repeat of the ‘09 crash. However, I doubt he will get elected, or if elected, he won’t have control of congress, so nothing substantial will get done.

Q: Is this the beginning of Chinese (FXI) bank failures that will cause an economic crisis in mainland China?

A: It could be, but the actual fact is that the Chinese government is doing everything they can to rescue troubled banks and companies of all types with short term emergency loans. It’s part of their QE emergency rescue package.

Q: Can you explain what lower energy prices mean for the global economy?

A: Well, if you’re an oil consumer (USO), it’s fantastic news because the price of gas is going down. If you’re an oil producer (XLE), like for people in the Middle East, Texas, Louisiana, Oklahoma, and North Dakota, it’s terrible news. And if you’re involved anywhere in the oil industry, or own energy stocks or MLPs, you’re looking at something like another great recession. I have been hugely negative on energy for years. I’ve seen telling people to sell short coal (KOL). It’s having a “going out of business” sale.

Q: Should I aggressively short Tesla (TSLA) here? Surely, they couldn’t go up anymore.

A: Actually, they could go up a lot more. I would just stay away from Tesla and watch in amazement—there’s no play here, long or short. It suffices to say that Tesla stock has generated the biggest short-selling losses in market history. I think we’re up to about $15 billion now in short losses. Much smarter people than us have lost fortunes trying in that game.

Q: Was that an Amazon trade or a Google trade?

A: I sent out both Amazon and an Apple trade alert this morning. You should have separate trade alerts for each one.

Q: Are chips a long term buy at today’s level?

A: Yes, but companies like NVIDIA (NVDA), Micron Technology (MU), and Advanced Micro Devices (AMD) may be better long-term buys if you wait a couple of weeks and we test the new lows that we’ve been talking about. Chips are the canary in the coal mine for the global economy, and we have not gotten an all-clear on the sector yet. If you’re really anxious to get into the sector, buy a half of a position here and another half 10% down, which might be later this week.

Q: When will Foxconn reopen, the big iPhone factory in China?

A: Probably in the next week or so. Workers are steadily moving back; some factories are saying they have anywhere from 60-80% of workers returning, so that’s positive news.

Q: Are bank stocks a sell because of lower interest rates?

A: Yes, absolutely. If you think the 10-year treasury is running to a 1.00% yield as I do, the banks will get absolutely slaughtered, and we hate the sector anyway on a long-term basis.

Q: What about future Fed rate cuts?

A: Futures markets are now pricing in possibly three more rate cuts this year after discounting no more rate cuts only a few weeks ago. So yes, we could get more interest rates. I think the government is going to pull all the stops out here to head off a corona-induced recession.

Q: Once your options expire, is it still affected by after-hours trading?

A: If you read the fine print on an options contract, they don’t actually expire until midnight on a Saturday night after options expiration day, even though the stock market stops trading on a Friday. I’ve never heard of a Saturday exercise, but you may have to get a batch of lawyers involved if you ever try that.

Q: What’s the worst-case scenario for this correction?

A: Everything goes down to their 200-day moving averages, including Indexes and individual stocks. You’re talking about Apple dropping to $243 and Microsoft (MSFT) to $144, and NASDAQ (QQQ) to 8,387. That could tale the Dow Average (INDU) to maybe 24,000, giving up all the 2019 gains.

Good Luck and Good Trading

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

February 14, 2020

Diary, Newsletter

Global Market Comments
February 14, 2020
Fiat Lux

Featured Trade:

(FEBRUARY 12 BIWEEKLY STRATEGY WEBINAR Q&A)
(SQ), (TSLA), (FB), (GILD), (BA), (CRSP), (CSCO), (GLD)
(FEYE), (VIX), (VXX), (USO), (LYFT), (UBER)

February 12 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Summary

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader February 12 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: What do you think about Facebook (FB) here? We’ve just had a big dip.

A: We got the dip because of a double downgrade in the stock from a couple of brokers, and people are kind of nervous that some sort of antitrust action may be taken against Facebook as we go into the election. I still like the stock long term. You can’t beat the FANGs!

Q: If Bernie Sanders gets the nomination, will that be negative for the market?

A: Absolutely, yes. It seems like after 3 years of a radical president, voters want a radical response. That said, I don't think Bernie will get the nomination. He is not as popular in California, where we have a primary in a couple of weeks and account for 20% of total delegates. I think more of the moderate candidates will come through in California. That's where we see if any of the new billionaire outliers like Michael Bloom or Tom Steyer have any traction. My attitude in all of this is to wait for the last guy to get voted off the island—then ask me what's going to happen in October.

Q: When should we come back in on Tesla (TSLA)?

A: It’s tough with Tesla because although my long-term target is $2,500, watching it go up 500% in seven months on just a small increase in earnings is pretty scary. It’s really more of a cult stock than anything else and I want to wait for a bigger pullback, maybe down to $500, before I get in again. That said, the volatility on the stock is now so high that—with the short interest going from 36% down to 20%—if we get the last of the bears to really give up, then we lose that whole 20% because it all turns into buying; and that could get us easily over $1,000. The announcement of a new $2 billion share offering is a huge positive because it means they can pay off debt and operate with free capital as they don’t pay a dividend.

Q: Is Square (SQ) a good buy on the next 5% drop?

A: I would really wait 10%—you don't want to chase trades with the market at an all-time high. I would wait for a bigger drop in the main market before I go aggressive on anything.

Q: What about CRISPR Technology (CRSP) after the 120% move?

A: We’ve had a modest pullback—really more of a sideways move— since it peaked a couple of months ago; and again, I think the stock either goes much higher or gets taken over by somebody. That makes it a no-lose trade. The long sideways move we’re having is actually a very bullish indication for the stock.

Q: If Bernie is the candidate and gets elected, would that be negative for the market?

A: It would be extremely negative for the market. Worth at least a 20% downturn. That said, according to all the polling I have seen, Bernie Sanders is the only candidate that could not win against Donald Trump—the other 15 candidates would all beat Trump in a 1 to 1 contest. He's also had one heart attack and might not even be alive in 6 months, so who knows?

Q: I just closed the Boeing (BA) trade to avoid the dividend hit tomorrow. What do you think?

A: I’m probably going to do the same, that way you can avoid the random assignments that will stick you with the dividend and eat up your entire profit on the trade.

Q: When do you update the long-term portfolio?

A: Every six months; and the reason for that is to show you how to rebalance your portfolio. Rebalancing is one of the best free lunches out there. Everyone should be doing it after big moves like we’ve seen. It’s just a question of whether you rebalance every six months or every year. With stocks up so much a big rebalancing is due.

Q: I have held onto Gilead Sciences (GILD) for a long time and am hoping they’ll spend their big cash hoard. What do you think?

A: It’s true, they haven’t been spending their cash hoard. The trouble with these biotech stocks, and why it's so hard to send out trade alerts on them, is that you’ll get essentially no movement on them for years and then they rise 30% in one day. Gilead actually does have some drugs that may work on the coronavirus but until they make another acquisition, don’t expect much movement in the stock. It’s a question of how long you are willing to wait until that movement.

Q: Is it time to get back into the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX)?

A: No, you need to maintain discipline here, not chase the last trade that worked. It’s crucial to only buy the bottoms and sell the tops when trading volatility. Otherwise, time decay and contango will kill you. We’re actually close to the middle of the range in the (VXX) so if we see another revisit to the lows, which we could get in the next week, then you want to buy it. No middle-of-range trades in this kind of market, you’re either trading at one extreme or the other.

Q: Could you please explain how the Fed involvement in the overnight repo market affects the general market?

A: The overnight repo market intervention was a form of backdoor quantitative easing, and as we all know quantitative easing makes stocks go up hugely. So even though the Fed said this wasn't quantitative easing, they were in fact expanding their balance sheet to facilitate liquidity in the bond market because government borrowing has gotten so extreme that the public markets weren’t big enough to handle all the debt; that's why they stepped into the repo market. But the market said this is simply more QE and took stocks up 10% since they said it wasn't QE.

Q: What about Cisco Systems (CSCO)?

A: It’s probably a decent buy down here, very tempting. And it hasn't participated in the FANG rally, so yes, I would give that one a really hard look. The current dip on earnings is probably a good entry point.

Q: Should we buy the Volatility Index (VIX) on dips?

A: Yes. At bottoms would be better, like the $12 handle.

Q: When is the best time to exit Boeing?

A: In the next 15 minutes. They go ex-dividend tomorrow and if you get assigned on those short calls then you are liable for the dividend—that will eat up your whole profit on the trade.

Q: Do you like Fire Eye (FEYE)?

A: Yes. Hacking is one of the few permanent growth industries out there and there are only a half dozen listed companies that are cutting edge on security software.

Q: What are your thoughts on the timing of the next recession?

A: Clearly the recession has been pushed back a year by the 2019 round of QE, and stock prices are getting so high now that even the Fed has to be concerned. Moreover, economic growth is slowing. In fact, the economy has been growing at a substantially slower rate since Trump became president, and 100% of all the economic growth we have now is borrowed. If the government were running a balanced budget now, our growth would be zero. So, certainly QE has pushed off the recession—whether it's a one-year event or a 2-year event, we’ll see. The answer, however, is that it will come out of nowhere and hit you when you least expect it, as recessions tend to do.

Q: Would you buy gold (GLD) rather than staying in cash?

A: I would buy some gold here, and I would do deep in the money call spreads like I have been doing. I’ve been running the numbers every day waiting for a good entry point. We’re now at a sort of in between point here on call spreads because it’s 7 days to the next February expiration and about 27 days to the March one after that, so it's not a good entry point this week. Next week will look more interesting because you’ll start getting accelerated time decay for March working for you.

Q: When are you going to have lunch in Texas or Oklahoma?

A: Nothing planned currently. Because of my long-term energy views (USO), I have to bring a bodyguard whenever I visit these states. Or I hold the events at a Marine Corps Club, which is the same thing.

Q: Would you use the dip here to buy Lyft (LYFT)? It’s down 10%.

A: No, it’s a horrible business. It’s one of those companies masquerading as a tech stock but it isn’t. They’re dependent on ultra-low wages for the drivers who are essentially netting $5 an hour driving after they cover all their car costs. Moreover, treating them as part-time temporary workers has just been made illegal in California, so it’s very bad news for the stocks—stay away from (LYFT) and (UBER) too.

Q: Is the Fed going to cut interest rates based on the coronavirus?

A: No, interest rates are low enough—too low given the rising levels of the stock market. Even at the current rate, low-interest rates are creating a bubble which will come back to bite us one day.

Q: Household debt exceeded $14 trillion for the first time—is this a warning sign?

A: It is absolutely a warning sign because it means the consumer is closer to running out of money. Consumers make up 70% of the economy, so when 70% of the economy runs out of money, it leads to a certain recession. We saw it happen in ‘08 and we’ll see it happen again.

Good Luck and Good Trading

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

February 10, 2020

Diary, Newsletter

Global Market Comments
February 10, 2020
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or BATTLING THE CORONAVIRUS),
(SPY), (CCL), (RCL), (WYNN), (DAL), (VIX), (VXX)

The Market Outlook for the Week Ahead, or Battling the Coronavirus

Diary, Newsletter

I am writing this to you from the first-class cabin of Quantas Airlines on the nonstop flight from Melbourne, Australia to San Francisco, a 14-hour flight. While my flight from the US to the Land Down Under was packed, the return was half empty, great for free upgrades.

It has been a daunting day. I was originally scheduled to transfer on my flight from Perth to Sydney. But my plane there was found to be contaminated with Coronavirus and had to be decontaminated. I quickly rerouted.

I ended up sitting next to a research doctor who worked for San Francisco based-Gilead Sciences (GILD) and was returning from Wuhan, China, the epicenter of the virus. Since all flights from China to the US are now banned, he had to route his return home via Australia.

What he told me was alarming.

The Chinese are wildly understating the spread of the Coronavirus by perhaps 90% to minimize embarrassment to the government, which kept the outbreak secret for a full six months.

Bodies are piling up outside of hospitals faster than they can be buried. Police are going door to door arresting victims and placing them in gigantic quarantine centers. Every covered public space in the city is filled with beds and the roads are empty. Smaller cities and villages have set up barriers to bar outsiders.

He expected it would be many months before the pandemic peaked. It won’t end until the number of deaths hits the tens of thousands in China and at least the hundreds in the US.

The good news is that Gilead Sciences has an antiviral agent it developed for the other Coronaviruses, MERS and SARS, years ago which may be effective against the present epidemic. The company has already sent a planeload of the drug to China for immediate testing, which my new friend escorted.

The world has learned a lot since the West African Ebola outbreak of 2013. The Coalition for Epidemic Preparedness Innovation (CEPI) set up in response to that disease is now leading the charge against Corona.

A lab in Australia was able to isolate the virus in a month. The AIDS virus took ten years. It only required another day to sequence the genome. That has greatly shortened the time for the development of a vaccine and a cure. It will take a year to mass produce enough vaccine to inoculate the world. That will be too late to save the many in China who have already perished.

Needless to say, the impact on the global economy will be immense. As we learned from the trade war, take China out of the equation and many things don’t work anymore.

The country’s GDP growth rate is expected to plunge from 6% to 2% this quarter, and possibly zero. Factories have closed, disrupting supply chains globally. The car industry is most affected, with Hyundai in South Korea already shutting down production for lack of parts.

Travel and tourism shares, like airlines (DAL), casinos (WYNN), and cruise lines (CCL), (RCL) have also been hard hit.

US stocks are taking notice, but slowly. It seems that massive Quantitive Easing by the Federal Reserve is enough to head off even a global pandemic, at least for now. This will not last. We have already seen one 600-point down day and a (VIX) spike to $21. There will be more.

Despite the fact that we may be facing the end of the world, the Mad Hedge Trader Alert Service managed to catapult to new all-time highs.

My long volatility positions I picked up when the Volatility Index (VIX), (VXX) was a lowly $12, brought in a double or a triple for most holders in a mere two weeks.

My Global Trading Dispatch performance rose to a new high at +358.96% for the past ten years. My trailing one-year return rose to +48.59%. We closed out January with a respectable +3.11% profit. My ten-year average annualized profit ground back up to +35.31%.

All eyes will be focused on Corona, the virus, not the beer. The weekly economic data are virtually irrelevant now.

On Monday, February 10 at 1:00 PM, US Consumer Inflation Expectations are out.

On Tuesday, February 11 at 12:00 PM, JOLTS Job Openings for December are released.

On Wednesday, February 12, at 12:00 PM, Federal Reserve Chairman Jerome Powell testifies in front of congress.

On Thursday, February 13 at 8:30 AM, Weekly Jobless Claims come out. US Core Inflation for January is published.

On Friday, February 14 at 10:30 AM, Retail Sales for January are printed. The Baker Hughes Rig Count follows at 2:00 PM.

As for me, after my epic voyage home, I’ll be catching up on my sleep, dealing with the 16 hours of jet lag from Western Australia.

Good luck and good trading.

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

January 10, 2020

Diary, Newsletter, Summary

Global Market Comments
January 10, 2020
Fiat Lux

Featured Trade:

(FRIDAY, FEBRUARY 7 PERTH, AUSTRALIA STRATEGY LUNCHEON)
(JANUARY 8 BIWEEKLY STRATEGY WEBINAR Q&A),
(VIX), (VXX), (TSLA), (SIL), (SLV),
(WPM), (RTN), (NOC), (LMT), (BA), (EEM)

January 8 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader January 8 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: If the market is doing so well, why is the Fed flooding the market with liquidity?

A: It’s election year, so their primary focus is to get the president reelected and do everything they can to make sure that happens. If we continue at the current rate, the Fed will have zero ability to get us out of the next recession which will make it much deeper than it would be otherwise. Doing this level of borrowing and keeping interest rates near zero with the stock market going up 30% a year is insane, and we will be severely punished for it in the future.

Q: With the Volatility Index (VIX) near a 12-month low and the Mad Hedge Market Timing Index near an all-time high, is this a good time to put on LEAPs for the (VXX)?

A: Yes, in fact, a (VXX) LEAP (Long Term Equity Participation Security, or one-year-plus option spread), is the only LEAP I would put on right now. I get asked about LEAPs every day because returns on them are so huge, but I am holding back on a trade alert on a (VXX) leap because it seems like in January they really want to run this market high and run volatility down low. On the next move to a (VIX) in the $11 handle, you want to put out a one-year LEAP with a $16 strike. And that is essentially a guarantee that you will make money sometime in the coming year on a big down move in the stock market. (VXX) LEAPs are coming, just not yet.

Q: Do you think Iran is done with their attacks against the US or will there be more?

A: The belief there will be no more attacks is to call the end of a 40-year trend. There will be more attacks, and those are going to be your long side entry points. Every geopolitical crisis for the last 10 years has been a great entry point on the long side and the next one will be no different. Just hope you are not one of the victims.

Q: What would a war with Iran mean for the US economy and should I buy defense stocks?

A: You can take the Iraq war, which cost us about $4 trillion, and multiply that by three times to $12 trillion because Iran’s economy is three times the size of Iraq and has a much more sophisticated military. The Iranians are really in a good position because they know the US has no appetite for another Iraq, Afghanistan, or Vietnam. They just want us out of their neighborhood. As far as defense stocks, those really move on very long-term investments and production for government contracts. When you get an attack like this, you get a one-day pop of 5% and then they usually give it all back. So, I wouldn't be chasing defense stocks like Lockheed Martin (LMT), Northrop Grumman (NOC), and Raytheon (RTN) at these high levels—it’s a very high-risk trade.

Q: Will Boeing (BA) take heat from the Ukrainian crash in Tehran?

A: Yes. It’s down about $5, and you might even consider running the numbers on a February call spread. This may be the last chance to get into Boeing at those low levels. The 737 MAX will fly this year, their most important product.

Q: What’s your opinion on Thai Baht?

A: This really is the home here for opinion on all asset classes, large and small. The Thai Baht will rise. It’s a weak dollar play. Money is pouring into all the emerging currencies because of the massive overborrowing that’s going on in the U.S. Countries that overborrow and print money like crazy always debase their currencies over the long term. That makes emerging markets (EEM) a great buy, which are trading at half the valuation levels of US ones.

Q: U.S. hog farmers missed the opportunity of a lifetime last year because of African Swine Flu. Any thoughts on the price of pork and commodities for 2020?

A: They should do better now that we’re at least getting relief from an escalation of the trade war. However, I gave up covering agriculture because the American farmer is just too efficient; every year they just produce more and more crops with fewer and fewer inputs—it’s a loser’s game. They occasionally get bad weather and get a big price spike, but that Is totally unpredictable. I'm staying away from ag stocks. In terms of buying soybeans or Apple, or Google, or Amazon, I’ll take the tech stocks any day over ag’s. Plus, the insiders have a big advantage in ag’s.

Q: What is the ticker symbol for the Silver ETFs?

A: The Silver metal ETF is (SLV), Silver miners is (SIL), and the Silver Royalty Trust, Wheaton Precious Metals, is (WPM).

Q: Why has volatility been so minimal even with massive geopolitical risk going up?

A: Liquidity trumps all. This month, the fed is pumping a record $160 billion into the financial system, and all that money is going into stocks, making them go up and making volatility go down. Until that changes, this trend will continue.

Q: Apple just passed $300, is the next stop $400?

A: Yes, and we could get that this year in the run up to 5G in September. By the way, my average cost on my Apple shares split adjusted is 50 cents. I bought it in the late 1990s when the company was weeks away from bankruptcy.

Q: Any thoughts on Tesla (TSLA)?

A: Yes, go out and buy the car, not the stock. Wait for some kind of pullback. We have just had a fantastic run of good news kicking the stock from $180 up to $490. I think we will make it up to $550 on this run. But you don’t want to get involved unless you’re a day trader because now the risk is very high. The next big move for Tesla is going to be the announcement of a production factory in Berlin, where they will try to take on Mercedes, BMW, VW, and Audi on their home turf. Then, they will own Europe.

Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader