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The Market Outlook for the Week Ahead, or The Higher We Go the Cheaper We Get

I am sitting here holed up in my office in San Francisco.

Lake Tahoe is being evacuated as the Caldor fire is only ten miles away and the winds are blowing towards it. The visibility there is no more than 500 yards. The ski resorts are pointing their snow cannons towards their buildings to ward off flames.

Conditions are not much better here in Fog City. We are under a “stay at home” order due to intense smoke and heat. Even here, the fire engines are patrolling by once an hour.

The Boy Scout trip got cancelled this weekend, so the girls are having a cooking competition, chocolate chip waffles versus a German chocolate cake.

To make matters worse, I have been typing with only one finger all week, thanks to the elbow surgery I had on Tuesday. Next time, I’ll think twice before taking down a 300-pound steer. When I told the doctor how I incurred this injury, he laughed. “At your age?”

Which leaves me to contemplate this squirrelly stock market of ours. I have always been a numbers guy. But the higher the indexes rise, the cheaper stocks get. That’s not supposed to happen, but that is the fact.

We started out 2021 with an S&P 500 price earnings multiple of 25X. Now, we are down to a lowly 21X and the (SPY) is 20% higher, rising from $360 to $450.25.

The analyst community, ever the lagging indicator that they are, had S&P forward earnings for 2022 all the way down to $175. They have been steadily climbing ever since and are now touching $200 a share.

This is what 20/20 hindsight gets you. That and $5 will get you a cup of coffee at Starbucks. It takes a madman like me to go out on a limb with high numbers and then be right.

So what follows an ever-cheaper market? A more expensive one. That means stocks will continue to my set-in-stone target of $475 for the (SPY) for yearend, and (SPY) earnings of over $200 per share.

It gets better.

(SPY) earnings should hit $300 a share by 2025 and $1,400 a share by 2030. That makes possible my (SPY) target of $1,800 and my Dow Average target of 240,000 in a decade.

What are markets getting right that analysts and bears are getting wrong?

The future has arrived.

The pandemic brought forward business models and profitability by a decade. Technology is hyper-accelerating on all fronts.

Cycles are temporary but adoption is permanent. We are never going back to the old pre-pandemic economy. As a result, stocks are now worth a lot more than they were only two years ago.

So what do we buy now? There is a second reopening trade at hand, the post-delta kind. That means buying banks (JPM), (BAC), (C), brokers (GS), (MS), money managers (BLK), commodities (FCX), (X), hotels (WYNN), (MGM), airlines (ALK), (LUV), and energy (HAL), (SLB).

And what do we avoid like the plague? Bonds (TLT), which offer only confiscatory yields in the face of rising inflation with gigantic negative interest rates.

As for technology stocks, they will go sideways to up small in the aftermath of their ballistic moves of the past three months.

You all know that I am a history buff and there are particular periods of history that are starting to disturb me.

In August, we saw ten new intraday highs for the S&P 500 (SPY). That has not happened since 1987. Remember what happened in 1987?

We have not seen 11 new highs in August since 1929. The only negative three months seen since 1929 are August, September, and October. Remember what happened in 1929?

If that doesn’t scare the living daylights out of you, then nothing will. So, it seems we are in for some kind of correction, even if it’s just the 5% kind.

As for me, I’m looking forward to 2030.

The “Everything” Rally is on, according to my friend, Strategas founder Tom Lee. You can see it in the recent strength of epicenter stocks like energy, hotels, airlines, and casinos. It could run into 2022.

The Taper is this year and interest rate rises are later, said Jay Powell at Jackson Hole last week. Markets will be jumpy, especially bonds. Fed governor Jay Powell’s every word was parsed for meaning. Dove all the way. The larger focus will be on the August Nonfarm Payroll report out this week.

Pfizer Covid vaccination gets full FDA approval, requiring millions more to get shots and bringing forward the end of the pandemic. All 5 million government employees will now get vaccinated, including the entire military. It’s the fastest drug approval in history. Some 37,000 new cases in one day. The stock market likes it. Take profits on (PFE)

Bitcoin tops $50,000 after breaking several key technical levels to the upside. Next stop is a double top at $66,000. It helps that Coinbase is buying $500 million worth of crypto for its own portfolio. Buy (COIN) on dips.

The US Dollar will crash in coming years, says Jeffry Gundlach and I think he is right. Emerging markets will become the next big play but not quite yet. Gold (GLD) will be a great hideout once it comes out of hibernation. China will soon return to outperforming the US. The dollars reserve currency status is at risk.

The lumber crash is saving $40,000 per home, says Toll Brothers (TOL) CEO, Doug Yearly. Last year, lumber prices surged from $300 per board foot to an insane $1,700, thanks to a Trump trade war with Canada and soaring demand. It all flows straight through the bottom line of the homebuilders which should rally from here. Buy (TOL) on dips.

China’s crackdown creates investment opportunities, says emerging investing legend Mark Mobius. He sees corporate governance improving over the long term. The gems are to be found among smaller companies not affected by Beijing’s hard-line. Mobius loves India too.

My Ten-Year View

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!

My Mad Hedge Global Trading Dispatch saw a healthy +7.62% gain in August. My 2021 year-to-date performance appreciated to 76.83%. The Dow Average was up 15.87% so far in 2021.

That leaves me 80% in cash at 20% in short (TLT) and long (SPY). I’m keeping positions small as long as we are at extreme overbought conditions.

That brings my 12-year total return to 499.38%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.80%, easily the highest in the industry.

My trailing one-year return popped back to positively eye-popping 116.67%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.

We need to keep an eye on the number of US Coronavirus cases at 39 million and rising quickly and deaths topping 638,000, which you can find here.

The coming week will bring our monthly blockbuster jobs reports on the data front.

On Monday, August 30 at 11:00 AM, Pending Home Sales are published. Zoom (ZM) reports.

On Tuesday, August 31, at 10:00 AM, S&P Case Shiller National Home Price Index for June is released. CrowdStrike (CRWD) reports.

On Wednesday, September 1 at 10:45 AM, the ADP Private Employment report is disclosed.

On Thursday, September 2 at 8:30 AM, Weekly Jobless Claims are announced. DocuSign (DOCU) reports.

On Friday, September 3 at 8:30 AM, the all-important August Nonfarm Payroll report is printed. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.

Oh and the German chocolate cake won, but please don’t tell anyone.

As for me, given the losses in Afghanistan this week, I am reminded of my several attempts to get into this troubled country.

During the 1970s, Afghanistan was the place to go for hippies, adventurers, and world travelers, so of course, I made a beeline for straight for it.

It was the poorest country in the world, their only exports being heroin and the blue semiprecious stone lapis lazuli, and illegal export of lapis carried a death penalty.

Towns like Herat and Kandahar had colonies of westerners who spent their days high on hash and living life in the 14^th century. The one cultural goal was to visit the giant 6^th century stone Buddhas of Bamiyan 80 miles northwest of Kabul.

I made it as far as New Delhi in 1976 and was booked on the bus for Islamabad and Kabul ($25 one-way). Before I could leave, I was hit with amoebic dysentery.

Instead of Afghanistan, I flew to Sydney, Australia where I had friends and knew Medicare would take care of me for free. I spent two months in the Royal North Shore Hospital where I dropped 50 pounds, ending up at 125 pounds.

I tried to go to Afghanistan again in 2010 when I had a large number of followers of the Mad Hedge Fund Trader stationed there, thanks to the generous military high-speed broadband. The CIA waved me off, saying I wouldn’t last a day as I was such an obvious target.

So, alas, given the recent regime change, it looks like I’ll never make it to Afghanistan. I won’t live long enough to make it to the next regime change. It’s just one more concession I’ll have to make to my age. I’ll just have to content myself reading A One Thousand and One Nights at home instead. The Taliban blew up the stone Buddhas of Bamiyan in 2001.

In the meantime, I am on call for grief counseling for the Marine Corps for widows and survivors. Business has been thankfully slow for the last several years. But I’ll be staying close to the phone this weekend just in case.

Good luck and good trading.

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

India in 1976

August 17, 2021

Diary, Newsletter, Summary

Global Market Comments
August 17, 2021
Fiat Lux9

Featured Trader:

(IS AIRBNB YOUR NEXT TEN-BAGGER?),
(ABNB), (WYNN), (H), (GOOG), (PYPL)

Is Airbnb Your Next Ten-Bagger?

Diary, Newsletter, Research

When the pandemic hit in February, I figured Airbnb was toast. Global travel had ground to a halt, and competitors like Wynn Resorts (WYNN) and Hyatt Hotels (H) saw their share prices plunge to near zero.

Instead, the opposite happened.

While the big hotels continue to roast in purgatory, Airbnb catapulted to a new golden age, and how they did it was amazing.

They turned all travel local. Instead of recommending that I visit Cairo, Tokyo, or Rio de Janeiro, they suggested Carmel, Monterey, or Mendocino, all destinations within driving distance. It worked, and the company is now moving from strength to strength.

My neighborhood in Incline Village, NV was almost always deserted outside of holidays. Now it is packed with Airbnbrs awkwardly moving in every Friday only to flee on Sunday.

How would you like to get a 90% discount on all of your luxury hotel accommodations?

During my most recent trip to Dubrovnik in Croatia, I rented an 800-square foot, two-bedroom, two-bath home inside the city walls for $300 a night.

A single, cramped 150 square foot room in the nearest five-star hotel was $600 night.

All that was missing was room service, a hand out for a big tip, and a surly attitude.

Sounds like a massive, game-changing disruption to me.

Thank you, Airbnb!

I was not surprised to hear that the home-sharing app, Airbnb, was given a $31 billion valuation in the latest venture capital funding round.

The big question for you and me is: Will the valuation soar tenfold to $300 billion, and how much of a piece of that will you and I be allowed to get?

To answer that question, I spent six weeks traveling around the world as an Airbnb customer. This enabled me to understand their business model, their strengths and weaknesses, and analyze their long-term potential.

As a customer, the value you receive is nothing less than amazing.

I have been a five-star hotel client for most of my life, with someone else picking up the tab much of the time (thank you, Morgan Stanley!), so I have a pretty good idea on the true value of accommodations.

What you get from Airbnb is nothing less than spectacular. You get three or four times the floor space for one-third the price. That’s a disruption factor of 7:1.

The standards are often five-star and at the top end depending on how much you spend. I found out I could often get an entire three-bedroom house for the price of a single hotel room, with a better location.

Or, I could get an excellent abode in rural settings, where none other was to be had, whatsoever.

That’s a big deal for someone like me who spends so much of the year on the road.

You also get a new best friend in every city you visit.

On most occasions, the host greeted me on the doorsteps with the keys, and then introduced me to the mysteries of European kitchen appliances, heating, and air conditioning.

Pre-stocking the refrigerator with fresh milk, coffee, tea, and jam seems to be a tradition the hosts pick up in their Airbnb orientation course.

One in Waterford, Ireland even left me a bottle of wine, plenty of beer, and a frozen pizza. She read my mind. She then took me on a one-hour tour of their city, divulging secrets about their favorite restaurants, city sights, and nightspots. Everyone proved golden. Thanks, Mary!

After you check out, Airbnb asks you to review the accommodation. These can be incredibly valuable in deciding your next pick.

I had one near miss with what I thought was a great deal in London, until I read, “The entire place reeks of Indian cooking.”

Similarly, the hosts rate you as a guest.

One hostess in Dingle, Ireland shared a story about picking up her clients from town after they got drunk and lost in the middle of the night. Then they threw up in the back of the car on the way home.

Guests forgetting to return keys are another common complaint.

Needless to say, I received top ratings from my hosts, as fixing their WIFI to boost performance became a regular and very popular habit of mine.

After my initial fabulous experience in London, I thought it might be a one-off, limited to only the largest cities. So, I started researching accommodations for my upcoming trips.

I couldn’t have been more wrong.

Just the Kona Coast on the big island of Hawaii had an incredible 50 offerings, including several bargain beachfront properties.

The center of Tokyo had over 300 listings. The historic district in Florence, Italy had a mind blowing 351 properties.

Fancy a retreat on the island of Bali in Indonesia and tune up your surfing? There are over 197 places to stay!

Airbnb has truly gone global.

Airbnb’s business model is almost too simple to be true, involving no more than a couple of popular applications. Call it an artful melding of Google Earth, email, text, and PayPal.

While no one was looking, it became the world’s largest hotel at a tiny fraction of the capital cost.

The company has 4 million hosts in 100,000 cities worldwide, and 150 million users. That supply/demand imbalance shifts burden of the cost to the renters, who usually have to fork out a 12% fee, plus the cost of the cleaning service.

Hosts only pay 3% to process the credit card fees for the payment.

The tidal wave of revenues this has created has enabled Airbnb to become San Francisco’s largest privately owned “unicorn”,

To say that Airbnb has created controversy would be a huge understatement.

For a start, it has emerged as a major challenge to the hotel industry, which is still stuck with a 20^th century business model. There’s no way hotels can compete on price.

One Airbnb “super host” in Manhattan at one point managed 200 apartments, essentially, creating out of scratch, a medium sized virtual “hotel” until the city caught on to them.

Taxes are another matter.

Some municipalities require hosts to pay levies of up to 20%, while others demand quarterly tax filings and withholding taxes. That is, if tax collectors can find them.

Airbnb may be the largest new source of tax evasion today.

In cities where housing is in short supply, Airbnb is seen as crowding out local residents. After all, an owner can make far more money subletting their residence nightly than with a long-term lease.

Several owners told me that Airbnb covered their entire mortgage and housing cost for the year, while paying off the mortgage at the same time.

Owners in the primest of areas, like mid-town Manhattan off of Central Park, or the old city center in Dubrovnik, rent their homes out as much as 180 days a year.

It is doing nothing less than changing lives.

That has forced local governments to clamp down.

San Francisco has severe, iron-clad planning and zoning restrictions that only allow 2,000 new residences a year to come on the market.

It is cracking down on Airbnb, as well has other home sharing apps like FlipKey, VRBO, and HomeAway, by forcing hosts to register with the city or face brutal $1,000 a day fine.

So far, only 1,675 out of 9,000 hosts have done so.

Ratting out your neighbor as an off the grid Airbnb member has become a new cottage industry in the City of the Bay.

Airbnb is fighting back with multiple lawsuits, citing the federal Communications Decency Act, the Stored Communications Act, and the First Amendment covering the freedom of speech.

It is a safe bet that a $31 billion company can spend more on legal fees than a city the size of San Francisco.

The company has also become the largest contributor in San Francisco’s local elections. In 2015, it fought a successful campaign against Proposition “F” meant to place severe restrictions on their services.

An Airbnb stay over is not without its problems.

The burden of truth in advertising is on the host, not the company, and inaccurate listings are withdrawn only after complaints.

A twenty-something-year-old guy’s idea of cleanliness may be a little lower than your own.

Long time users learn the unspoken “code”.

“Cozy” can mean tiny, “as is” can be a dump, and “lively” can bring the drunken screaming of four letter words all night long, especially if you are staying upstairs from a pub.

And that spectacular seaside view might come with relentlessly whining Vespa’s on the highway out front. Always bring earplugs and blindfolds as backups.

Researching complaints, it seems that the worst of the abuses occur in shared accommodations. Learning new foreign cultures can be fascinating. But your new roommate may want to get to know you better than you want, especially if you are female.

In one notorious incident, a Madrid guest was raped and had to call customer service in San Francisco to get the local police to rescue here. The best way to guard against such unpleasantries is to rent the entire residence for your use only, as I do.

Another problem arises when properties are rented out for illegal purposes, such as prostitution or drug dealing.

More than once, an unsuspecting resident woke up one morning to discover they were living next door to a new bordello.

Coming out of the pandemic, my conclusion is that the travel industry is entering a hyper growth phase. Blame the emerging middle-class Chinese, who seem to be everywhere.

The real shock came when I left Airbnb and stayed in a regular hotel. Include the fees and the cleaning charges, and the service is no longer competitive for a single night stay. Total costs now regularly run double the posted one night price posted on websites.

In any case, most hosts have two or three night minimums to minimize hassle.

When I checked in at a Basel, Switzerland Five Star hotel, all I got was a set of keys and a blank stare. No great restaurant tips, no local secrets, no new best friend.

I spent that night surfing www.airbnb.com , planning my next adventure.

My New Best Friend

April 16, 2021

Diary, Newsletter, Summary

Global Market Comments
April 16, 2021
Fiat Lux

Featured Trade:

(APRIL 14 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (JPM), (ROM), (AAPL), (MSFT), (FB) (CRSP), (TLT), (VIX), (DIS), (NVDA), (MU), (AMD), (AMAT) (PLTR), (WYNN), (MGM)

April 14 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Research

Below please find subscribers’ Q&A for the April 14 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA.

Q: How do you choose your buy areas?

A: It’s very simple; I read the Diary of a Mad Hedge Fund Trader. Beyond that, there are two main themes in the market right now: domestic recovery and tech; and I try to own both of those 50/50. It's impossible to know which one will be active and which one will be dead, and some of that rotation will happen on a day-by-day basis. As for single names, I tend to pick the ones I have been following the longest.

Q: In my 401k, should I continue placing my money in growth or move to something like emerging markets or value?

A: It depends on your age. The younger you are, the more aggressive you should be and the more tech stocks you should own. Because if you’re young, you still have time to earn the money back if you lose it. If you’re old like me, you basically only want to be in value stocks because if you lose all the money or we have a recession, there's not enough time to go earn the money back; you’re in spending mode. That is classic financial advisor advice.

Q: When you say “Buy on dips”, what percentage do you mean? 5% or 10%

A: It depends on the volatility of the stock. For highly volatile stocks, 10% is a piece of cake. Some of the more boring ones with lower volatility you may have to buy after only a 2% correction; a classic example of that is the banks, like JP Morgan (JPM).

Q: Even though you’re not a fan of cryptocurrency, what do you think of Coinbase?

A: It’ll come out vastly overvalued because of the IPO push. Eventually, it may fall to a lower level. And Coinbase isn’t necessarily a business model dependent on bitcoin; it is a business model based on other people believing in bitcoin, and as long as there’s enough of those creating two-way transactions, they will make money. But all of these things these days are coming out super hyped; and you never want to touch an IPO—wait for it to drop 50%, as I once did with Tesla (TSLA).

Q: Please explain the barbell portfolio.

A: The barbell works when you have half tech, half domestic recovery. That way you always have something going up, because the market tends to rotate back and forth between the two sectors. But over the long term everything goes up, and that is exactly what has been happening.

Q: Is the ProShares Ultra Technology Fund (ROM) an ETF?

A: Yes, it is an ETF issuer with $53 billion worth of funds based in Bethesda, MD. (ROM) is a 2x long technology ETF, and their largest holdings include all the biggest tech stocks like Apple (AAPL), Microsoft (MSFT), Facebook (FB), and so on.

Q: Will all this government spending affect the market?

A: Yes, it will make it go up. All we’re waiting to see now is how fast the government can spend the money.

Q: What is the target for ROM?

A: $150 this year, and a lot more on the bull call spread. The only shortcoming of (ROM) is you can only go out six months on the expiration. Even then, you have a good shot at making a 500% return on the farthest out of the money LEAPS, the November $130-$135 vertical bull call spread. That's because market makers just don’t want to take the risk being short technology two years out. It’s just too difficult to hedge.

Q: There have been many comments about hyperinflation around the corner. Will we be seeing hyperinflation?

A: No, the people who have been predicting hyperinflation have been predicting it for at least 20 years, and instead we got deflation, so don’t pay attention to those people. My view is that technology is accelerating so fast, thanks to the pandemic, that we will see either zero inflation or we will see deflation. That has been the pattern for the last 40 years and I like betting on 40-year trends.

Q: When we get called away on our short options, is it easier to close the trade than to exercise your option?

A: No, any action you take in the market costs money, costs commissions, costs dealing spreads. And it's much easier just to exercise the option if you have to cover your short, which is either free or will cost you $15.

Q: Are you worried about overspending?

A: No, the proof in that is we have a 1.53% ten-year US Treasury yield, and $20 trillion in QE and government spending is already known, it’s already baked in the price. So don’t listen to me, listen to Mr. Market; and it says we haven't come close to reaching the limit yet on borrowing. Look at the markets, they're the ones who have the knowledge.

Q: My Walt Disney (DIS) LEAPs are getting killed. I don't understand why my LEAPS go down even on green days for the stock.

A: The answer is that the Volatility Index (VIX) has been going down as well. Remember, if you’re long volatility through LEAPS, and volatility goes down, you take a hit. That said, we’re getting close to the lows of the year for volatility here, so any further stock gains and your LEAPS should really take off. And remember when you buy LEAPS, you’re doing multiple bets; one is that volatility stays high and goes higher, and one is that your stock is high and goes higher. If both those things don’t happen, and you can lose money.

Q: How do you best short the (TLT)?

A: If you can do the futures market, Treasury bonds are always your best short there because you have 10 to 1 leverage.

Q: How would you do a spread on Crisper Technology (CRSP)?

A: We have a recommendation in the Mad Hedge Biotech & Healthcare service to be long the two-year LEAP on Crisper, the $160-$170 vertical bull call spread.

Q: When do you see the largest dip this year?

A: Probably over the summer, but it likely won’t be over 10%. Too much cash in the market, too much government spending, too much QE. People will be in “buy the dips” mode for years.

Q: Is the SPAC mania running out of steam?

A: Yes, you can only get so many SPACS promising to buy the same theme at a discount. I think eventually, 80% of these SPACS go out of business or return the money to investors uninvested because they are promising to buy things at great bargains in one of the most expensive markets in history, which can’t be done.

Q: What do you think about Joe Biden’s attempt to tame the semiconductor chip shortage?

A: Most people don't know that all chips for military weapons systems are already made in the US by chip factories owned by the military. And the pandemic showed that a just-in-time model is high risk because all of a sudden when the planes stop flying, you couldn't get chips from China anymore. Instead, they had to come by ship which takes six weeks, or never. So a lot of companies are moving production back to the US anyway because it is a good risk control measure. And of course, doing that in the midst of the worst semiconductor shortage in history shows the importance of this. Even Tesla has had to delay their semi truck because of chip shortages. Keep buying NVIDIA (NVDA), Micron Technology (MU), Advanced Micro Devices (AMD), and Applied Materials (AMAT) on dips.

Q: Do you see a sell the news type of event for upcoming earnings?

A: Yes, but not by much. We got that in the first quarter, and stocks sold off a little bit after they announced great earnings, and then raced back up to new highs. You could get a repeat of that, as people are just sitting on monster profits these days and you can’t blame them for wanting to pull out a little bit of money to spend on their summer vacation.

Q: Has the stock market gotten complacent about COVID risk?

A: No, I would say COVID is actually disappearing. Some 100 million Americans have been vaccinated, 5 million more a day getting vaccinated, this thing does actually go away by June. So after that, you only have to worry about the anti-vaxxers infecting the rest of the population before they die.

Q: Do you see any imminent foreign policy disasters in Asia, the Middle East, or Europe that could derail the stock market?

A: I don’t, but then you never see these things coming. They always come out of the blue, they're always black swans, and for the last 40 years, they have been buying opportunities. So pray for a geopolitical disaster of some sort, take the 5-10% selloff and buy because at the end of the day, American stockholders really don't care what’s going on in the rest of the world. They do care, however, about increasing their positions in long-term bull markets. I don't worry about politics at all; I don’t say that lightly because it’s taking 50 years of my own geopolitical experience and throwing it down the toilet because nobody cares.

Q: Would you buy Coinbase?

A: Absolutely not, not even with your money. These things always come out overpriced. If you do want to get in, wait for the 50% selloff first.

Q: Is Canada a play on the dollar?

A: Absolutely yes. If they get a weaker dollar, it increases Canadian pricing power and is good for their economy. Canada is also a great commodities play.

Q: The IRS is using Palantir (PLTR) software to find US citizens avoiding taxes with Bitcoin.

A: Yes, absolutely they are. Anybody who thinks this is tax-free money is delusional. And this is one reason to buy Palantir; they’re involved in all sorts of these government black ops type things and we have a very strong buy recommendation on Palantir and their 2-year LEAPS.

Q: Are NFTs, or Non-Fundable Tokens, another Ponzi scheme?

A: Absolutely, if you want to pay millions of dollars for Paris Hilton’s music collection, go ahead; I'd rather buy more Tesla.

Q: When do you think you can go to Guadalcanal again?

A: Well, I’m kind of thinking next winter. Guadalcanal is one of the only places you can go and get more diseases than you can here in the US. Last year, I went there and picked up a bunch of dog tags from marines who died in the 1942 battle there, sent them back to Washington DC, and had them traced and returned to the families. And I happen to know where there are literally hundreds of more dog tags I can do this with. It’s not an easy place to visit and it’s very far away though. Watch out for malaria. My dad got it there.

Q: Walt Disney is already above the pre-pandemic price. Do you suggest any other hotel company name at this time?

A: Go with the Las Vegas casinos, Wynn (WYNN) and MGM (MGM) would be really good ones. Las Vegas is absolutely exploding right now, and we haven't seen that yet in the earnings yet, so buy Las Vegas for sure.

Q: Is the upcoming Roaring Twenties priced into the stock market already?

A: Absolutely not. You didn't want to sell the last Roaring Twenties in 1921 as it still had another eight years to go. You could easily have eight years on this bull market as well. We have historic amounts of money set up to spend, but none of it has been actually spent yet. That didn’t exist in 1921. I think that when they do start hitting the economy with that money, that we get multiple legs up in stock prices.

To watch a replay of this webinar just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.

Good Luck and Stay Healthy.

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

February 5, 2021

Diary, Newsletter, Summary

Global Market Comments
February 5, 2021
Fiat Lux

Featured Trade:

(FEBRUARY 3 BIWEEKLY STRATEGY WEBINAR Q&A),
(MRNA), (PFE), (JNJ), (AMZN), (SLV), (GME), (GLD), (CLDR), (SNOW), (NVDA), (X), (FCX),
(AAPL), (TSLA), (FEYE), (PANW), (SWI), (WYNN), (MGM), (LVS)

February 3 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the February 3 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV.

Q: Is there a big difference between COVID-19 vaccines?

A: The best vaccine is the one you can get. It’s better than being dead. But there are important differences. The Pfizer (PFE) and Moderna (MRNA) vaccines are RNA vaccines, they’re very safe, and getting similar results. But the evidence shows that about 15% of Moderna recipients are coming down with flu-like symptoms on their second shot. Nobody knows why, as the two are almost biochemically identical. AstraZeneca is a killed virus type vaccine, which means if they have a manufacturing error, you end up giving the disease to people by accident, as with the original polio vaccine. So that's the less safe vaccine. So far, that one has only been used in Europe and Australia, as it is made in England. There isn’t enough data about the John & Johnson (JNJ) single-shot vaccine.

Q: Is Moderna (MRNA) a long term buy?

A: The trouble with all the vaccine plays is that we’re heading for a global vaccine glut in about 4 months when we’ll have something like 12 companies around the world making them. The rush for everyone to get a vaccination as soon as possible is leading to inevitable overproduction and falling stock prices. Moderna is already a 12 bagger for us. I’m not really looking to overstay my welcome, so to speak. Time to cash in and say, “Thank you very much, Mr. Market.” There will be another cycle down the road for (MRNA) as its technology is used to cure cancer, but not yet.

Q: Would you recommend a silver (SLV) LEAP?

A: Yes, silver was run up 35% for a day by the GameStop (GME) crowd and crashed the next day, which was to be expected because there are no short positions in silver. Everything was just hedged to look like there were short positions because the big banks had huge open short options positions that were public and hedges in the futures and silver bars that were private. The (GME) people only saw the public short positions. Long term, I would go for a $30-$32 vertical call spread expiring in 2023. Go out 2 years, and I think you could get silver at $50. So, a good LEAP might get you a 1000% return in two years. Those are the kinds of trades I like to do.

Q: What do you think of Amazon now that Jeff Bezos is retiring?

A: Buy the daylights out of it. That was the great unknown overhanging the stock for years, Jeff’s potential retirement. Now it's no longer unknown, you want to buy (AMZN). Even before the retirement, I was targeting $5,000 a share in two years. Now we have everybody under the sun raising their targets to $5,000 or more— we even had one upgrade today to $5,200. There are at least half a dozen businesses that Amazon can expand into, like healthcare, which will be multibillion-dollar earners. And then if you break it up because of antitrust, it doubles in value again, so that's a screaming buy here. We have flatlined for six months, so this could be a trigger for a long-term breakout.

Q: Is there anything else left after GameStop? Another short play?

A: Well, this was the worst short squeeze in 25 years, and everyone else covered their other shorts because they don't want to get wiped out like the one Melvin Capital. There were only around a dozen potential single-digit heavily shorted stocks out there, and those are mostly gone. So, the GameStop crowd will have to roll up their sleeves and do some hard work finding stocks the old fashion way—by doing research. I’m guessing that GameStop was a one-hit-wonder; we probably won’t be surprised again. At the same time, you should never underestimate the stupidity of other investors.

Q: What do you think of the cloud plays like Cloudera and Snowflake?

A: I love cloud plays and there will be more coming. The entire US economy is moving on to the cloud. But everyone else loves them too. Snowflake (SNOW) doubled on its first day, and Cloudera (CLDR) doubled over the last three months, so they're incredibly expensive and high risk. But you can't argue with their business models going forward—the cloud is here to stay.

Q: Would you buy LEAPS in financials?

A: Absolutely yes; go out two years for your maturity and 30% on your strike prices, you will get a ten bagger on the trade. If I’m wrong, it only goes to zero.

Q: Is US Steel (X) a buy?

A: Yes. They are being dragged up by the global commodity boom triggered by the global synchronized recovery. (X) took a hit today because they just priced a $700 million secondary share issue which the flippers dumped like a hot potato. If given the choice, I’d rather do a copper play with Freeport McMoRan (FCX) which is seeing much more buying from China. I bought it on Monday.

Q: Any chance you can include one-, three-, and five-year price targets?

A: No chance whatsoever. I’ve never heard of a fund manager that could do that and be right. Stocks are just too imprecise an instrument with all the emotion that’s involved. But for the better stocks, you can with confidence predict at least a double. And by the way, all my predictions for the last 13 years have been way, way on the low side, so I tend to be conservative. Like, remember when Amazon was at $10? I said it would go to $20. Boy was I right!

Q: How can you say the next four years will be good for the stock market?

A: Well, $10 trillion in fiscal stimulus, $10 trillion in QE; stocks tend to like that. Oh, and technology exponentially accelerating on all fronts and far more broadly than what we saw in the 1990s. Also, there is a certain person who is no longer president, so add about 10-20% on top of all stock valuations. Companies can finally do long term planning again, after being unable to do so for four years because policies were anti-trade, anti-business, and flip-flopping every other day. So yes, I think that's enough to make the next 4 four years good; and actually, I think the next 8 years could be good—I'm predicting Dow 120,000 by 2030, if you recall.

Q: When do you expect the next 5% correction if there is one? February is always very volatile.

A: With an unlimited liquidity market like we have, it is really tough to see negatives of any kind. What kind of negatives are out there? The pandemic doesn’t stop—that's the main one. There’s another one people aren't talking about: the reason we got all these vaccines so fast is they took all regulation and threw it out the window. What if one of these vaccines kill off a million people? That would be pretty negative for the market. Interest rates could rocket faster than expected. But I’m always short there so that would be a moneymaker. But these are pretty out there possibilities, and that is why the market is not backing off, and when it does, it only gives us 5%.

Q: Is the Fed stimulating the economy too much?

A: The bond market says no with a ten-year yield of 1.10%, and the bond market is always the ultimate arbiter of when the stimulus ends. That’s because the Fed can’t directly control bond market interest rates, only overnight rates. But when we get bonds up to, say, a 3% yield (which is probably 2 or 3 years off), that’s when we’re getting too much stimulus, and we’ll probably take our foot off the pedal way before then. I know Janet Yellen and she agrees with me on this point. She’ll be throttling back well before we see a 3% yield in the Treasury market.

Q: Do you manage other people’s money?

A: No, because it costs a million dollars in legal fees to set up even a small fund these days. When I set up my hedge fund 30 years ago, there were no regulatory costs because no one knew what a hedge fund was; they all thought they were doing something illegal, so they didn't have to register for anything. That’s why it’s changed now.

Q: What is your target on NVIDIA (NVDA), and will it split?

A: It’s an easy double, with a global chip shortage running rampant. They make the best graphics cards in the world, bar none. These big tech companies tend not to split until they get share prices into the thousands, which is what Apple (AAPL) and what Tesla (TSLA) did three or four times.

Q: If we get 3.25% in bonds, is that going to hurt gold?

A: Yes, and that’s one of the reasons I bailed on my gold positions a couple of weeks ago. It effectively turned into a bond long. A sharp rise in interest rates is bad for gold because we all know that gold yields to zero.

Q: What about Fireye (FEYE)?

A: Yes, we also love Fireye in addition to Palo Alto Networks (PANW) because there is a near-monopoly—there are only about six players in the entire cybersecurity industry and hacking is getting worse by the day. Look at the Solar Winds (SWI) fiasco and the national Russian hack there.

Q: What about copper as a recovery play?

A: Well, I voted with my feet on Monday when I bought a position in Freeport McMoRan, after it just sold off 15%. I think (FCX) could double at some point in the coming economic recovery. So, copper is an absolute winner, and when having to choose between copper and steel, I’ll pick copper all day long.

Q: What do you recommend for gold (GLD)?

A: Gold is a trading range for the time being. Buy the dips, sell the rallies; you won’t get more than about 10% or 15% range on that. And there are just better fish to fry right now, like financials, which benefit from rising interest rates as opposed to being punished. Bitcoin is stealing gold’s thunder and the markets keep creating more Bitcoins.

Q: Should high-frequency trading be banned?

A: I don’t think it should be. It does create liquidity; the effect on the market is wildly overexaggerated. They’re basically trading for pennies or tenths of pennies, so they do provide buying on selloffs and selling at huge price spikes. They do have a positive effect and they’re probably only taking about $10 or $20 billion in profit a year out of the market.

Q: Should I buy Wynn Resorts (WYNN) here?

A: Buy the dips for sure; this is a major recovery play. We here in Nevada are expecting an absolute tidal wave of people to hit the casinos once the pandemic ends, and (WYNN), (MGM), and (LVS) would be a great play in those areas.

Good Luck and Stay Healthy.

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

October 22, 2020

Diary, Newsletter, Summary

Global Market Comments
October 22, 2020
Fiat Lux

Featured Trade:

(IS AIRBNB YOUR NEXT TEN BAGGER?),
(WYNN), (H)

July 20, 2020

Diary, Newsletter, Summary

Global Market Comments
July 20, 2020
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE’S YOUR SERVING OF ALPHABET SOUP),
(SPY), (TLT), (GLD), (TSLA), (DRI), (WYNN), (H), (AMC)

The Market Outlook for the Week Ahead, or Here’s You Serving of Alphabet Soup

Diary, Newsletter

Here is your generous helping of alphabet soup. If you look very closely, you can find some bay leaves, oregano, black pepper, and lots of V’s, W’s, U’s, and L’s.

Now, let’s play a game and see who can pick the letter that most accurately portrays the current economic outlook.

Here is a code key:

V – the very sharp collapse we saw in Q1 and Q2 is followed by an equally sharp recovery in Q3 and Q4.

W – The sharp recovery in Q3 and Q4 fails and we see a double-dip extending into 2021.

U – The economy stays at the bottom for a long time before it finally recovers.

L – The economy collapses and never recovers.

The question is, in which of these forecasts should we invest our investment strategy?

For a start, you can throw out the “L”. Every recession flushes out a covey of Cassandras who predicts the economy will never recover. They are always wrong.

I believe what we are seeing play out right now is the “W” scenario. This is the best cash scenario for traders, as it calls for a summer correction in the stock market when we can load the boat a second time. If you missed the March low you will get a second bite of the Apple.

With corona cases soaring nationwide, and deaths skyrocketing, it is safe to write off the “V” recovery scenario.

If I’m wrong, we will get a “U”, a longer recovery. This cannot be dismissed lightly as the unemployment rate is about to take off as the PPP money runs out, state unemployment benefits are exhausted, and mass evictions ensue.

If I limited the outlook to only four possible scenarios, I’d be kidding you. The truth is far more complicated.

Each industry gets its own letter of the alphabet. Technology, some 27% of total stock market capitalization gets no letter at all because it is thriving, thanks to the global rush to move commerce online. That explains the single-minded pursuit of this sector by investors since the market 23 bottom.

Hotel chains like Hyatt Hotels (H) and casinos like Wynn Resorts (WYNN) get a “U” because they will recover after a long period of suffering. As for Movie theaters like AMC Entertainment Holdings (AMC) and restaurant chains such as Darden Restaurants (DRI), they get an “L” because it is hard to see any sustainable recovery before widespread use of a vaccine.

Weekly Jobless Claims remained at Historic Levels, at 1.3 million, reaching a total of 51 million since the pandemic began. We are about to see a huge surge in the unemployment rate as PPP money and state unemployment benefits run out. Without help from the federal government, millions will be thrown out on the street.

Tesla hit $1,800, up $255, on the news they may join the S&P 500 forcing a ton of institutional buying. Its market capitalization is now a staggering $330 billion, more than the entire global car industry combined. They also cut Model Y prices by $3,000, from $53,000 to $50,000, in another effort to keep new entrants at bay. The model Y is expected to be the biggest seller in history, hence the ballistic move in the shares now. Close your eyes and keep buying (TSLA) on dips.

Tesla is dead, long live Tesla, says Morgan Stanley analyst Adam Jonas. The big upside here will not be in (TSLA) itself, but in supplier companies such as ST Microelectronics, NXP Semiconductors (NXPI), Cree (CREE), and China’s CATL. Jonas, an early Tesla bull, still maintains a $3,000 target, but that is now only a double from here, a far cry from the 110X move behind us off the post IPO low.

5G cell phones could offset Corona losses to the global economy, or so says a French economic research institute. Productivity improvement alone could be worth $2.2 trillion a year. The big winner? Apple (AAPL). Is this really why stocks are going up so fast?

California shut down again as hospital emergency rooms approach capacity. All indoor business has ceased for a state that accounts for 21% of US GDP. The Golden State saw 8,357 new cases on Sunday. Unfortunately, it gives more credence to my “W” shaped recovery for the economy. Stocks noticed about three hours into the Monday session, diving 550 points. It’s not me! I tested negative last week.

Homebuilders saw the best June in history, up 55% YOY. Builders and supplies are now in short supply and prices are rising sharply. New homes are being favored over existing ones, which can’t be viewed through standardized virtual presentations. Keep buying (LEN), (KBH), and (PHM) on dips as the gale-force Millennial tailwind continues unabated.

Homebuilder Confidence jumped back to pre-pandemic levels, up a massive 14 points to 72. The golden age for the sector is just beginning as Millennials working in tech move to the burbs where the home office rules. Lumber is in short supply, thanks to Trump's tariffs with Canada, so prices just hit a two-year high. Keep buying.

We may get our fifth stimulus bill next week, as the Senate attempts to protect corporations from Covid-19 liability. Almost all of the $3 trillion in stimulus so far has ended up in the stock market, and another trillion can only be bullish.

Moderna claimed success with a true Covid vaccine, with 100% results in a 45-person human trial. (MRNA) soared by 15% on the news. A late July trial will involve 30,000. The company has never produced a product before using its RNA technology. Keep buying biotechs on dips. I’m long (SGEN), (ILMN), and (REGN). Dow futures up 300 in Asia on the news.

US air travel was down 89% in May, YOY. Whatever recovery you’re seeing in the economy it’s not happening here. I’m 200,000 miles a year guy and I probably won’t go near a plane until 2022. Avoid all airline stocks on pain of death. There are much better fish to fry.

Apple won a European antitrust case big time, ducking a massive 14.4 billion fine. Stock was up $7 on the news and is rapidly approaching my two-year target of $400. It's yet another case of “not invented here.” European regulators jealous of American success constantly assault US big tech. They view it as just another cost of doing business.

US budget deficit soared to $867 billion in June, taking it to an unprecedented $10.4 trillion annual rate. The national debt will rocket by 50% this year. Your grandkids are going to have a monster bill to pay. Keep selling every rally in the US dollar (UUP) and the bond market (TLT) and buy gold (GLD).

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

My Global Trading Dispatch enjoyed another sizzling week, up a red hot +2.73%. My eleven-year performance rocketed to a new all-time high of 384.54%. A triple weighting in biotech did the heavy lifting. A four-day short position in the bond market (TLT) was the icing on the cake.

That takes my 2020 YTD return up to an enviable +28.63%. This compares to a loss for the Dow Average of -6.2%, up from -37% on March 23. My trailing one-year return popped back up to a record 68.19%, also THE HIGHEST IN THE 13 YEAR HISTORY of the Mad Hedge Fund Trader. My eleven-year average annualized profit recovered to a record +36.32%, another new high.

The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here. It’s jobs week and we should see an onslaught of truly awful numbers.

On Monday, July 20, IBM (IBM) reports Q2 earnings.

On Tuesday, July 21 at 7:30 AM EST, the June Chicago Fed National Activity Index is released. Microsoft (MSFT), Tesla (TSLA), and Lockheed Martin (LMT) report earnings.

On Wednesday, July 22, at 7:30 AM EST, the all-important Existing Home Sales for June are published. Amazon (AMZN) and Thermo Fisher Scientific (TMO) report earnings. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.

On Thursday, July 23 at 8:30 AM EST, the frightful Weekly Jobless Claims are announced. American Airlines (AA) report.

On Friday, June 24, at 7:30 AM EST, the New Home Sales for June are published. The Baker Hughes Rig Count is out at 2:00 PM EST. Verizon (VZ) reports earnings.

As for me, I have been going down memory lane looking at my old travel photos because that’s all I can do in quarantine.

I am now banned in Europe.

So are you for that matter. In fact, there are very few countries in the world that will accept an American visitor. With the world’s highest Covid-19 infection, rates we are just too dangerous to have around. This is tough news for a guy who usually travels around the world once or twice a year.

It’s not the first time I have been banned from a country.

During the 1980s, The Economist magazine of London sent me to investigate the remote country of Nauru, one-half degree south of the equator in the middle of the Pacific Ocean. They had the world’s highest per capita income due to the fact that the island was entirely composed of valuable bird guano.

During an interview with the president, I managed to steal a top-secret copy of the national budget. I discovered that the president’s wife had been commandeering aircraft from Air Nauru to go on lavish shopping expeditions in Sydney, Australia where she was blowing $200,000 a day, all at government expense.

It didn’t take long for missing budget to be found. I was arrested, put on trial, sentenced to death for espionage, and locked up to await my fate.

Then one morning, I was awoken by the rattling of keys. The editor of The Economist in London had made a call. I was placed in handcuffs and placed on the next plane out of the country. When I was seated next to an Australian passenger, he asked “Jees, what did you do mate, kill someone?” On arrival, I sent the story to the Australian papers (click here for the story).

I have not been back to Nauru since.

Stay healthy.

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

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