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November 30 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the November 30 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: You keep mentioning December 13th as a date of some significance. Is this just because the number 13 is unlucky?

A: December 13th at 8:30 AM EST is when we get the next inflation report, and we could well get another 1% drop. Prices are slowing down absolutely across the board except for rent, which is still going up. Gasoline has come down substantially since the election (big surprise), which is a big help, and that could ignite the next leg up in the bull market for this year. So, that is why December 13 is important. And we could well flatline, do nothing, and take profits on all our positions before that happens, because whatever it is you will get a big move one way or another (and maybe both) on December 13.

Q: I’m a new subscriber, and I am intrigued by your structuring of options spreads. Why do you do debit spreads instead of credit spreads?

A: It’s really six of one and a half dozen of the other—the net profit is pretty much the same for either one. However, debit spreads are easier to understand than credit spreads. We have a lot of beginners coming into this service as well as a lot of seasoned old pros. And it’s easier to understand the concept of buying something and watching it go up than shorting something and watching it go down. Now, doing the credit spreads—shorting the put spread—gives you a slight advantage in that it creates cash which you can then use to meet margin requirements. However, it’s only a small amount of cash—only the potential profit in that position. And guess what? All the big hedge funds actually kind of like easy-to-understand trade alerts also, so that’s why we do them.

Q: I have a lot of exposure in NVIDIA (NVDA), so is it worth trading out of it and coming back in at a lower rate?

A: NVIDIA is one of the single most volatile stocks in the market—it’s just come up 50%. But it could well test the lower limits again because it is so volatile, and the chip industry itself is the most volatile business in the S&P 500. If your view is short-term, I would take profits now, and look to go back in next time we hit a low. If you’re long-term, don’t touch it, because NVIDIA will triple from here over the next 3 years. I should caution you that if you do try the short-term strategy, most people miss the bottom and end up paying more to get back into the stock; and that's the problem with all these highly volatility stocks like Tesla (TSLA), NVIDIA (NVDA) and Advanced Micro Devices (AMD) unless you’re a professional and you sit in front of a screen all day long.

Q: Would you buy now and step in to make it long-term?

A: I think we get a couple more runs at the lows myself. We won’t get to the old lows, but we may get close. Those are your big buying points for your favorite stocks and also for LEAPS. And I’m going to hold back on new LEAPS recommendations—we’ve done 12 in the last two months for the Concierge members, and maybe half of those went out to Global Trading Dispatch before they took off again. So, that would be my approach there.

Q: How much farther can the Fed raise interest rates until they reverse?

A: 1%-2%, unless they get taken over by the data—unless suddenly the economy starts to weaken so much that they panic and reverse like crazy. I think that's actually what’s going to happen, which is why we went hyper-aggressive in October on the long side, especially in bonds (TLT). You drop rates on the ten-year from 4.5% to 2.5% in six months—that’s an enormous move in the bond market. That is well worth running a triple long position in it; I think that’s what's going to happen. That’s where we will make out the first 30% in 2023.

Q: Should I short the cruise lines here, like Royal Caribbean (RCL)?

A: They do have their problems—they have massive debts they ran up to survive the pandemic when all the ships were mothballed, so it is an industry with its major issues. The stock has already doubled since the summer so I wouldn’t chase it up here. I’m not rushing to short anything here right now though unless it’s really liquid or has horrendous fundamentals like the oil industry, which everyone seems to love but I hate—right now the haters are winning for the short term, until December 16, which is all I care about.

Q: Is the diesel shortage going to affect farmers and all other industries like the chip?

A: As the economy slows down, you can expect shortages of everything to disappear, as well as all supply chain issues, which is a positive for the economy for the long term.

Q: What about the 2024 iShares 20 Plus Year Treasury Bond ETF (TLT) 95—is that not a trade?

A: That’s a one-year position with a 100% potential profit. That is worth running to expiration unless we get a huge 20-point move up in the next 3 months, which is possible, and then there won’t be anything left in the trade—you’ll have 95% of the profit in hand at which point you’ll want to sell it. So, with these one-year LEAPS or two-year LEAPS, run them one or two years unless the underlying suddenly goes up a lot, and then grab the money and run; that's what I always tell people to do. Because if you sell your position, they can’t take the money away from you with a market correction.

Q: Is the current US economy the best economy in the world?

A: It is. If you look at any other place in the world, it’s hard to find an economy that's in better shape, and it’s because we have the best management in the world and hyper-accelerating technology which everyone else begs and borrows. Or steals. People who are predicting zero return on stocks for 10 years are out of their minds. You don’t short the best economy in the world. If anything, technology is accelerating, and that will take the stock market with it in the next year or so.

Q: Do you see the Dow ($INDU) outperforming the other indexes until the Fed positive pivots?

A: Absolutely yes, because the S&P 500 (SPY) has a very heavy technology weighting and technology absolutely sucks right now. That would probably be a good 3-month trade—buy the Dow, and short the S&P 500 in equal amounts. Easy to do—you might pick up 10% on a market-neutral trade like that.

Q: Do you see a Christmas rally this year?

A: Actually, I do, but it won’t start until we get the next inflation report on December 13, at which point I'm going 100% cash. I’ve made enough money this year, and this is a problem I had when I ran my hedge fund: when you make too much money, nobody believes it, so there's really no point in making more than 50% or 60% a year because people think it’s fake. This is true in the newsletter business as well. Markets also have a nasty habit of completely reversing in January; this year, we had one up day in January, and then it was bombs away and we just piled on the shorts like crazy, so you have to wait for the market to first give you the fake move for the year, and then the real one after that. The best way to take advantage of that is to be 100% cash, and that’s why I usually do.

Q: What indicators do you see that give you the most confidence that inflation has peaked?

A: There's one big one, and that’s real estate. Real estate is absolutely in a recession right now and has the heaviest weighting of any individual industry in the inflation calculation. If anybody thinks house prices are going up, please send me an email and tell me where, because I’d love to know. The general feeling is they’re down 10-15% over the last six months. New homes are only being sold with massive buydowns in interest rates and free giveaways on upgrades. It is an industry that is essentially shut down, with interest rates having gone from 2.75% to 7.5% in a year, so there’s your deflation, but unfortunately, real estate is also the slowest to price in in the Fed’s inflation calculation, so we have to go through six months of torture until the Fed finally sees proof that inflation is falling. So, welcome to the stock market because it's just one of those factors. Just for fun, I got a quote on financing an investment property. The monthly payment would have been double for half the house that I already have.

Q: Are LEAPS a buy with the CBOE Volatility Index (VIX) this low?

A: No, you want to look at stocks first, and then the VIX; and with all the stocks sitting on top of 30-50% rises, it’s a horrible place to do LEAPS. LEAPS were an October play—we bought the bottom in a dozen LEAPS in October, and those were great trades, except for Tesla (TSLA) and Rivian (RIVN) which still have two years left to run. Up here, you’re basically waiting on a big selloff before you go into these one to two-year options positions.

Q: Why does Biden keep extending student loans? Will this catch up at some point?

A: He’s going to take it to the Supreme Court, and if he loses at the Supreme Court, which is likely, then he’ll probably give up on any loan extensions. At this point, the loan extensions on student loans are something like 2 or 2.5 years. The reason he’s doing this is to get 26 million people back into the economy. As long as you have giant student loan balances, you can’t get credit, you can’t get a credit card, you can’t buy a house, you can’t get a home loan. Bringing that many new people into the economy is a huge positive for not only them but for everyone else because it strengthens the economy. That has always been the logic behind forgiving student loans—and by the way, the United States is virtually the only country in the world that makes students pay back their loans after 30 or 40 years. The rest give college educations away either for free or give some interest-free break on repayments until they can get a salary-paying job.

Q: Does the budget deficit drop impact the stock market?

A: Yes, but it impacts the bond market first and in a much bigger way. That’s one of the reasons that bonds have rallied $13 points in six weeks because less government borrowing means lower interest rates—it’s just a matter of supply and demand. This has been the fastest deficit reduction since WWII, and markets will discount that.

Q: Will the US dollar (UUP) crash?

A: Yes, it will. You get rid of those high interest rates and all of a sudden nobody wants to own the US dollar, so we have great trades setting up here against everything, except maybe the Yuan where the lockdowns are a major drag.

Q: Is silver (SLV) a buy now?

A: No, it’s just had a big 10% move; I would wait for any kind of dip in silver and gold (GOLD) before you go into those trades. And when/if you do, there are better ways to do it.

Q: How is the Ukraine war going?

A: It’ll be over next year after Ukraine retakes Crimea, which they’ve already started to do. Russia is running out of ammunition, and so are we, by the way. However, the United States, as everybody learned in WWII, has an almost infinite ability to ramp up weapons production, whereas Russia does not. Russia is literally using up leftover ammunition from WWII, and when that’s gone, they’ve got nothing left, nor the ability to produce it in any sizable way. All good reasons to sell short oil companies ahead of a tsunami of Russian oil hitting the market. By the way, oil is now down for 2022.

Q: What's the number one short in oil (USO)?

A: The most expensive one, that would be Exxon Mobile (XOM).

Q: What’s going to happen to the markets in January?

A: After this Christmas rally peters out, I’m looking for profit-taking in January.

Q: When is a good time to buy debit spreads on oil?

A: Now. Look at every short play you can find out there; I just don’t see a massive spike up in oil prices ahead of a recession. And by the way, if the war in Ukraine ends and Russian oil comes back on the market, then you’re looking at oil easily below $50.

Q: What is the best way to invest in iShares Silver Trust (SLV) in the long term?

A: A two-year LEAP on the Silver (SLV) $25-$26 call spread—that gets you a 100%-200% return on that.

Q: Is lithium a good commodity trade?

A: Lithium will move in sync with the EV industry, which seems to have its own cycle of being popular and unpopular. We’re definitely in the unpopular phase right now. Long term demand for lithium will be increasing on literally hundreds of different fronts, so I would say yes, lithium is kind of the new copper. Look at Albemarle (ALB), Societe Chemica Y Minera de Chile (SQM), and FMC Corp. (FMC).

Q: If we do a LEAPS on Crown Castle Incorporated (CCI), you won’t get the dividend right?

A: No, you won’t, it’s a dividend-neutral trade because you’re long and short in a LEAPS. You have to buy the stock outright and become a registered shareholder to earn the dividend which, these days, is a hefty 4.50%. That said, if you’re looking for a high dividend stock-only play, buying the (CCI) down here is actually a great idea. For the stock-only players, this would be a really good one right now.

Q: Do you know people who are selling because of large capital gains?

A: The only people I know who are selling have giant tax bills to pay because of all the money they made trading options this year. I happen to know several thousand of those, as it turns out. So yes, I do know and that could affect the market in the next couple of weeks, which is why I went with the flatlined scenario for the next two weeks. Most tax-driven selling will be finished in the next two weeks, and after that, it kind of clears the decks for the markets to close on a high note at the end of the year.

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 or DISPATCH TECHNOLOGY LETTER as the case may be, then click on 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

November 28, 2022

Diary, Newsletter, Summary

Global Market Comments
November 28, 2022
Fiat Lux

Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or LOOKING FOR BIG FOOT),
(NVDA), (VIX), (TLT), (TSLA), (XOM),
(OXY), (TSLA), (SPY), (MA), (V), (AXP)

The Market Outlook for the Week Ahead, or Looking for Big Foot

Diary, Newsletter, Research

On October 14, investors finally achieved the portfolios they long desired, not only individuals but institutional ones as well. They got rid of stocks and bonds that had been hobbling them all year and built their cash positions to decade highs.

What happened the next day?

Stocks and bonds went straight up for six weeks. Cash became trash.

For October 14 was the day that the stock market discounted the worst-case economic scenario for 2023, no matter how bad it may get. And it probably won’t get very bad. That’s barring a black swan-type event, like a brand-new global pandemic.

If you think your job can be frustrating, how about mine? If you run with the dumb crowd, the uninformed crowd, the loser crowd, you get your just desserts.

Fortunately, I saw these moves coming a mile off and loaded the boat. I’ve actually made more money on the parabolic move in bonds than some of the enormous moves in stocks. NVIDIA (NVDA) up 50%?

My performance in November has so far tacked on another robust +7.05%. My 2022 year-to-date performance ballooned to +82.42%, a spectacular new high. The S&P 500 (SPY) is down -16.85% so far in 2022.

It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +94.61%.

That brings my 14-year total return to +594.98%, some 2.60 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.76%, easily the highest in the industry.

I am going into the month-end surge with a fairly aggressive 40% long, (TLT), (TSLA), 40% short (XOM), (OXY), (TSLA), (SPY), with 20% crash for a totally market-neutral position. We’ve just had a heck of a run, and prices could well stall not far from here for the short term. The post-election rally happened, as predicted in this space.

Like Big Foot, the Yeti, and the Loch Ness Monster, the Fed pivot may soon actually make an appearance. I’m talking months, not years. That’s when our August central bank flips from the most severe tightening of interest rates in history, to a neutral, or one can only pray, an easing stance. This is what the 15% rally in stocks over the last six weeks has been all about.

And here is another old-time worn market nostrum. If investors sense that something is going to happen, they discount it fast, very fast.

Of course, there will be several false starts, denied rumors, and false flags, as there always are. After all, this is my 11^th bear market. These will create sudden panic attacks, market selloffs, and Volatility Index (VIX) runs to $30 which are the license to print money for the Mad Hedge Fund Trader. Wait for the market to tell you when to trade. Ignoring it can prove expensive.

As we say here in the west, go off the reservation and you can get a lot of arrows stuck in your back.

How is this even remotely possible with the money supply only at $21.4 trillion, down 2% YOY? That’s a buzz cut from the +30% rate from a year ago.

The answer is that the money is out there, just hiding in different unrecognizable forms. Much of the $4 trillion in pandemic stimulus payments have yet to be spent. Inflation has added $2 trillion in new corporate profits through higher sales prices. Similarly, there is also another $1.5 trillion in pay increases bubbling through the system, also inspired by inflation.

You see this is booming credit card spending, much to the joy of Master Card (MA), Visa (V), and American Express (AXP) and their share price surges we have recently seen.

As I keep telling my Concierge customers on the phone, there is no playbook anymore. All the old ones have been rendered useless by the pandemic. To succeed and make windfall profits like me, you basically have to make it up as you go along.

The Fed Favors the Slowing of Rate Hikes, making a December increase of only 50 basis points a sure thing, according to minutes released on Wednesday for the prior meeting. Housing especially is taking a big hit. All interest rate plays, like bonds, rallied strongly.

Equities See Monster Inflows, some $23 billion in 35 weeks according to the Bank of America (BAC) flow of funds survey. There have been huge cash flows out of Europe looking for a stronger dollar, fleeing WWIII, and collapsing home currencies. The big chase is on. Time to go short? I am. It could be a big bull trap.

Leading Economic Indicators Dive, off 0.8% in October, double the decline expected and the weakest since the pandemic low in April 2020. There has only been one positive number in this data series in 2022. You have to go back to the financial crisis to find numbers this bad.

S&P Global Manufacturing PMI Takes a Hit in November, down to 47.6 from an estimate of 50. Services fell from 48 to 46.1. It’s another coincident recession indicator.

Existing Home Sales Plunge 5.9% in October to an annualized rate of 4.43 million units. It is the slowest sales pace in 11 years. It's not as bad as expected but is still down a horrific 28.4% YOY. Inventory fell to just 1.22 million units, only a 3.3-month supply, supporting prices in a major way. In fact, prices are still rising, up 6.6% annually to $379,100. Housing accounts for about 20% of the US economy, so here is your recession threat right here.

New Home Sales Come in Hot at 632,000, a real shocker with the 30-year fixed at 7.4%. Low-ball seller financing incentives must be a factor where they buy down rates to lower levels. Free upgrades, like those cherry wood cabinets, bonus rooms, and marble kitchen counters, also help. Prices are still up 15% YOY and inventories rose to a once unbelievable 8.9 months.

OPEC Plus Considering a 500,000 Barrels a Day Increase at their coming December meeting, which Saudi Arabia vehemently denied. The comments came out just as West Texas intermediate was barreling in on a new nine-month low. Saudi Arabia can talk all they want, but it’s tough to beat a coming recession, which every other hard asset class and commodity is now confirming.

Disney Axes Chairman, dumping Bob Chapek and bringing back Bob Iger from retirement. Losing $1.5 billion on the Disney Plus streaming service and losing its special tax status from the State of Florida has its costs. (DIS) is also not a stock to buy if we are going into recession. Avoid (DIS), despite the 10% move today. Let’s first see if Iger can cut costs.

My Ten-Year View

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

On Monday, November 28 at 8:00 AM EST, the Dallas Fed Manufacturing Index for November is out.

On Tuesday, November 29 at 8:30 AM, the S&P Case Shiller National Home Price Index is released.

On Wednesday, November 30 at 8:30 AM, the ADP Private Employment Report for November is published. We also get a number on Q3 US GDP.

On Thursday, December 1 at 8:30 AM, the Weekly Jobless Claims are announced. US Personal Income and Spending for October is also out.

On Friday, December 2 at 8:30 AM, the Nonfarm Payroll Report for November is disclosed. At 2:00, the Baker Hughes Oil Rig Count is out.

As for me, by the 1980s, my mother was getting on in years. Fluent in Russian, she managed the CIA’s academic journal library from Silicon Valley, putting everything on microfilm.

That meant managing a team that translated over 1,000 monthly publications on topics as obscure as Artic plankton, deep space phenomenon, and advanced mathematics. She often called me to ascertain the value of some of her findings.

But her arthritis was getting to her, and all those trips to Washington DC were wearing her out. So I offered Mom a job. Write the Thomas family history, no matter how long it took. She worked on it for the rest of her life.

Dad’s side of the family was easy. He was traced to a small village called Monreale above the Sicilian port city of Palermo famed for its Byzantine church. Employing a local priest, she traced birth and death certificates going all the way back to an orphanage in 1820. It is likely he was a direct illegitimate descendant of Lord Nelson of Trafalgar.

Grandpa fled to the United States when his brother joined the Mafia in 1915. The most interesting thing she learned was that his first job in New York was working for Orville Wright at Wright Aero Engines (click here). That explains my family’s century-long fascination with aviation.

Grandpa became a tailer gunner on a biplane in WWI. My dad was a tail gunner on a B-17 flying out of Guadalcanal in WWII. As for me, you’ve all heard of plenty of my own flying stories, and there are many more to come.

My Mom’s side of the family was an entirely different story.

Her ancestors first arrived to found Boston, Massachusetts in 1630 during the second Pilgrim wave on a ship called the Pied Cow, steered by a Captain Ashley (click here).

I am a direct descendant of two of the Pilgrims executed for witchcraft in the Salem Witch Trials of 1692, Sarah Good and Sarah Osborne, where children’s dreams were accepted as evidence (click here). They were later acquitted.

When the Revolutionary War broke out in 1776, the original Captain John Thomas, who I am named after, served as George Washington’s quartermaster at Valley Forge responsible for supplying food to the Continental Army during the winter.

By the time Mom completed her research, she discovered 17 ancestors who fought in the War for Independence and she became the West Coast head of the Daughters of the American Revolution. It seems the government still owes us money from that event.

Fast forward to 1820 with the sailing of the whaling ship Essex from Nantucket, Massachusetts, the basis for Herman Melville’s 1851 novel Moby Dick. Our ancestor, a young sailor named Owen Coffin signed on for the two-year voyage, and his name “Coffin” appears in Moby Dick seven times.

In the South Pacific 2,000 miles west of South America, they harpooned a gigantic sperm whale. Enraged, the whale turned around and rammed the ship, sinking it. The men escaped to whaleboats. And here is where they made the fatal navigational errors that are taught in many survival courses today.

Captain Pollard could easily have just ridden the westward currents where they would have ended up in the Marquesas’ Islands in a few weeks. But these islands were known to be inhabited by cannibals, which the crew greatly feared. They also might have landed in the Pitcairn islands, where the mutineers from Captain Bligh’s HMS Bounty still lived. So the boats rowed east, exhausting the men.

At day 88, the men were starving and on the edge of death, so they drew lots to see who should live. Owen Coffin drew the black lot and was immediately shot and devoured. The next day, the men were rescued by the HMS Indian within sight of the coast of Chile, and returned to Nantucket by the USS Constellation.

Another Thomas ancestor, Lawson Thomas, was on the second whaleboat that was never seen again and presumed lost at sea. For more details about this incredible story, please click here.

When Captain Pollard died in 1870, the neighbors discovered a vast cache of stockpiled food in the attic. He had never recovered from his extended starvation.

Mom eventually traced the family to a French weaver 1,000 years ago. Our name is mentioned in England’s Domesday Book, a listing of all the land ownership in the country published in 1086 (click here). Mom died in 2018 at the age of 88, a very well-educated person.

There are many more stories to tell about my family’s storied past, and I will in future chapters. This week, being Thanksgiving, I thought it appropriate to mention our Pilgrim connection.

I have learned over the years that most Americans have history-making swashbuckling ancestors, but few bother to look.

I did.

Stay healthy,

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

Happy Thanksgiving from the Thomas Family

USS Essex

August 23, 2022

Diary, Newsletter, Summary

Global Market Comments
August 23, 2022
Fiat Lux

Featured Trade:

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

Better Batteries Have Become Big Disrupters

Diary, Newsletter

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And guess what?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

He may be their future boss.

Tesla’s Solid-State Battery Design

Is that a Double Top?

June 1, 2022

Tech Letter

Mad Hedge Technology Letter
June 1, 2022
Fiat Lux

Featured Trade:

(FACETIME ON COMPUTER NOT WHAT IT ONCE WAS)
(XOM), (NFLX), (ZM)

Facetime on Computer Not What It Once Was

Tech Letter

Data may be the new oil, but oil is still oil, and the price per barrel of crude oil as we speak is $118.

The high price of energy, amongst other controversial forces, has been the genesis of great pain for tech stocks in 2022 and it was only just 18 months ago Zoom (ZM) had a bigger market cap than Exxon Mobil (XOM).

Fast forward to today, Exxon Mobil is 10x bigger than Zoom.

This is just a sign of the times.

That was then and this is now, and past pricing won't dictate future price and markets can remain irrational much longer than you can stay solvent, but this oil pricing will remain fluid for the foreseeable future.

The cure for higher prices is often said to be higher prices to the further detriment of tech shares.

As we step back for a second and analyze this new world order with new rules, the ‘Facetime on computer’ company ZM SHOULD be worth less than a global oil giant powering civilization.

10 to 1 seems like a mockery of the situation in which the ratio should probably be more like 1000x to 1.

The current price is a reflection of the “good times” in the energy space and tech has by and large been sent to the graveyard.

Concerns that the Fed's rate hikes may induce a recession are keeping investors guessing about the outlook for the economy as rising food and energy costs squeeze consumers, and volatility has picked up.

Therefore, how do we predict the short-term future?

It will clearly be defined by dramatic and volatile stock swings in each direction of the pendulum.

Tech markets, and by default, global markets, since tech is the driving force of the US markets will still indulge in fear of missing out (FOMO) portfolio managers that got whacked the first 6 months of the year, only to try to play catch up to achieve performance targets.

Don’t tell me these people don’t exist, they’ve just been licking their wounds in a more than brutal market setup.

This bear market rally is taking place on the heels of US President Joe Biden using a rare meeting with Federal Reserve Chair Jerome Powell to literally paint Powell as the scapegoat.

These meetings usually take place before a selloff because more often than not, people in certain places know horrible inflation numbers are coming down the pipeline hence the scapegoat meeting.

Even if inflation stays stubbornly high, but comes down to 6%, it will still hurt the American consumer which many economists have referred to as the last peg holding up the US stock market and economy.

The momentum we are seeing in this bear market rally won’t be able to hold much longer as American consumers are priced out of housing and credit card delinquency inches up.

Tech earnings won’t be what saves us either as the prospect of downward revisions to earnings estimates is the latest headwind to face stock investors.

We must rejoice around this Nasdaq bear market rally that has seen tech come back to life.

The dominant ecommerce company Amazon has seen a 15% resurgence and left-wing biased streaming company Netflix (NFLX) has recovered 15% from their lows too.

But we need to remember that since February 2022, this is a new world with a new set of rules.

Oil is more important than seeing your coworkers on a video chat, yet the inverse was true before February.

In this new world, tech and its share prices simply don’t stack up like they used to compared to other asset classes.

That being said, tech won’t go up in a straight line from this bear market rally, and that’s certainly better than the kamikaze-esque price action we saw the first half of the year.

The Mad Hedge Technology Letter will pick our spots, but I am not convinced in going completely bullish or 100% bearish at this point in the deleveraging cycle.

May 31, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
May 31, 2022
Fiat Lux

Featured Trade:

(FOSSIL FUEL FIRMS TO THE RESCUE)
(BTC), (XOM), (MRO)

Fossil Fuel Firms to the Rescue

Bitcoin Letter

The next real long-term inflection point in the development of Bitcoin is the question about energy or bitcoin infrastructure.

I can’t help but notice the elongating list of crypto mining companies and energy producers collaborating and the knock-on effects will follow through.

This is highly likely a long-term benefit for the price and stability of bitcoin.

Like many things in corporate America, everything gets professionalized, specialized, corporatized, and if they are lucky, financialized as a product and resold to investors.

The usual result is a higher-priced last-mile product and in this case, it would be the price of one Bitcoin.

In 2021, ExxonMobil reported annual revenue of more than $285 billion with global daily production and is also working with a bitcoin mining company in North Dakota to turn otherwise wasted gas into energy for mining operations.

In August 2021, Exxon was already selling some gas to miners.

ConocoPhillips is also supplying gas to bitcoin miners.

Marathon Oil, a multi-billion-dollar oil company based in Houston, also powers co-located bitcoin mining operations with its gas.

American companies aren’t the only ones making headlines for their bitcoin-and-oil deals though.

Russian oil giant Gazprom has been planning and building its own bitcoin mining venture on its oil drilling sites since late 2020.

Bitcoin mining as an industry gains mainstream legitimacy as more traditional energy companies work with bitcoin miners.

Historically, bitcoin mining hasn’t been developed with institutional money and is mainly mom and pop outfits.

That also means it’s less efficient and less dynamic but has room to grow.

Just a few years ago, the concept of heavyweight names inking contracts with mining companies would be impossible.

Bitcoin mining is an energy infrastructure.

A future where every major oil producer is also a bitcoin miner — or at least operates a bitcoin mining arm — is an idea that has longevity and could become reality soon.

Particularly for the oil and gas industry, bitcoin miners continue to make inroads with more reported deals between these two industries.

The achievements that these partnerships represent would jump-start the crypto winter that has engulfed the crypto industry with many altcoins getting flipped into the dumpster.

The top fossil fuel producers, even if it seems like they are ridiculed by the climate change brigade every second, are incredibly powerful companies and if energy and bitcoin energy infrastructure are inextricably linked, it means bitcoin has staying power.

As many have noticed, fossil fuel companies are masters at milking an industry as they initiate buybacks and dividends in the face of “Putin’s” hyperinflation.

If Bitcoin energy infrastructure is embedded into the industry of the likes of Exxon and company, I believe the price of Bitcoin will be an outsized winner even if the price of oil goes to $200 first.

The overspill of profits could finally find its way into a new business of developing more efficient mining systems and embedding itself as the bulwark of crypto coin creation.

That will mean that fossil fuel companies will be able to throw more capital at developing Bitcoin’s infrastructure as a new standalone business as oil, at some point, retraces from its highs.

June 18, 2021

Diary, Newsletter, Summary

Global Market Comments
June 18, 2021
Fiat Lux

Featured Trade:

(JUNE 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(MS), (XOM), (FXI), (MSFT), (AMZN), (FB), (GOOGL), FCX), (CAT),
(GLD), (DIS), (GME), (AMC), (UBER), (LYFT), (TLT), (VIX)

Tag Archive for: (XOM)

Tesla’s Solid-State Battery Design