(XOM) Archives

January 6 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the January 6 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV.

Q: Any thoughts on lithium now that Tesla (TSLA) is doing so well?

A: Lithium stocks like Sociedad Qimica Y Minera (SQM) have been hot because of their Tesla connection. The added value in lithium mining is minimal. It basically depends on the amount of toxic waste you’re allowed to dump to maintain profit margins—nowhere close to added value compared to Tesla. However, in a bubble, you can't underestimate the possibility that money will pour into any sector massively at any time, and the entire electric car sector has just exploded. Many of these ETFs or SPACs have gone up 10 times, so who knows how far that will go. Long term I expect Tesla to wildly outperform any lithium play you can find for me. I’m working on a new research piece that raises my long-term target from $2,500 to $10,000, or 12.5X from here, Tesla becomes a Dow stock, and Elon Musk becomes the richest man in the world.

Q: Won’t rising interest rates hurt gold (GLD)? Or are inflation and a weak dollar more important?

A: You nailed it. As long as the rate rise is slow and doesn't get above 1.25% or 1.50% on the ten-year, gold will continue to rally for fears of inflation. Also, if you get Bitcoin topping out at any time, you will have huge amounts of money pour out of Bitcoin into the precious metals. We saw that happen for a day on Monday. So that is your play on precious metals. Silver (SLV) will do even better.

Q: What are your thoughts on TIPS (Treasury Inflation Protected Securities) as a hedge?

A: TIPS has been a huge disappointment over the years because the rate of rise in inflation has been so slow that the TIPS really didn’t give you much of a profit opportunity. The time to own TIPS is when you think that a very large increase in inflation is imminent. That is when TIPS really takes off like a rocket, which is probably a couple of years off.

Q: Will Freeport McMoRan (FCX) continue to do well in this environment?

A: Absolutely, yes. We are in a secular decade-long commodity bull market. Any dip you get in Freeport you should buy. The last peak in the previous cycle ten years ago was $50, so there's another potential double in (FCX). I know people have been playing the LEAPS in the calendars since it was $4 a share in March and they have made absolute fortunes in the last 9 months.

Q: Is it a good time to take out a bear put debit spread in Tesla?

A: Actually, if you go way out of the money, something like a $1,000-$900 vertical bear put spread, with the 76% implied volatility in the options market one week out, you probably will make some pretty decent money. I bet you could get $1,500 from that. However, everyone who has gone to short Tesla has had their head handed to them. So, it's a high risk, high return trade. Good thought, and I will actually run the numbers on that. However, the last time I went short on Tesla, I got slaughtered.

Q: Any thoughts on why biotech (IBB) has been so volatile lately?

A: Fears about what the Biden government will do to regulate the healthcare and biotech industry is a negative; however, we’re entering a golden age for biotech invention and innovation which is extremely positive. I bet the positives outweigh the negatives in the long term.

Q: Oil is now over $50; is it a good time to buy Exxon Mobil (XOM)?

A: Absolutely not. It was a good time to buy when it was at $30 dollars and oil was at negative $37 in the futures market. Now is when you want to start thinking about shorting (XOM) because I think any rally in energy is short term in nature. If you’re a fast trader then you probably can make money going long and then short. But most of you aren't fast traders, you’re long-term investors, and I would avoid it. By the way, it’s actually now illegal for a large part of institutional America to touch energy stocks because of the ESG investing trend, and also because it’s the next American leather. It’s the next former Dow stock that’s about to completely disappear. I believe in the all-electric grid by 2030 and oil doesn't fit anywhere in that, unless they get into the windmill business or something.

Q: With Amazon buying 11 planes, should we be going short United Parcel Service (UPS) and FedEx (FDX)?

A: Absolutely not. The market is growing so fast as a result of an unprecedented economic recovery, it will grow enough to accommodate everyone. And we have already had huge performance in (UPS); we actually caught some of this in one of our trade alerts. So again, this is also a stay-at-home stock. These stocks benefited hugely when the entire US economy essentially went home to go to work.

Q: Should we keep our stay-at-home stocks like DocuSign (DOCU), Zoom (ZM), and UPS (UPS)?

A: They are way overdue for profit-taking and we will probably see some of that; but long term, staying at home is a permanent fixture of the US economy now. Up to 30% of the people who were sent to work at home are never coming back. They like it, and companies are cutting their salaries and increasing their profits. So, stay at home is overdone for the short term, but I think they’ll keep going long term. You do have Zoom up 10 times in a year from when we recommended it, it’s up 20 times from its bottom, DocuSign is up like 600%. So way overdone, in bubble-type territory for all of these things.

Q: Are telecom stocks like Verizon (VZ) and AT&T (T) safe here?

A: Actually they are; they will benefit from any increase in infrastructure spending. They do have the 5G trend as a massive tailwind, increasing the demand for their services. They’re moving into streaming, among other things, and they had very high dividends. AT&T has a monster 7% dividend, so if that's what you’re looking for, we’re kind of at the bottom of the range on (T), so I would get involved there.

Q: Should we sell all our defense stocks with the Biden administration capping the defense budget?

A: I probably would hold them for the long term—Biden won’t be president forever—but short term the action is just going to be elsewhere, and the stocks are already reflecting that. So, Raytheon (RTX), United Technologies (UT), and Northrop Grumman (NOC), all of those, you don’t really want to play here. Yes, they do have long term government contracts providing a guaranteed income stream, but the market is looking for more immediate profits, or profit growth like you have been getting in a lot of the domestic stocks. So, I expect a long sideways move in the defense sector for years. Time to become a pacifist.

Q: Is it safe to buy hotels like Marriott (MAR), Hyatt (H), and Hilton (HLT)?

A: Yes, unlike the airlines and cruise lines, which have massive amounts of debt, the hotels from a balance sheet point of view actually have come through this pretty well. I expect a decent recovery in the shares, probably a double. Remember you’re not going to see any return of business travel until at least 2022 or 2023, and that was the bread and butter for these big premium hotel chains. They will recover, but that will take a bit longer.

Q: How about online booking companies like Expedia (EXPE) and Booking Holdings Inc, owner of booking.com, Open Table, and Priceline (BKNG)?

A: Absolutely; these are all recovery stocks and being online companies, their overhead is minimal and easily adjustable. They essentially had to shut down when global travel stopped, but they don’t have massive debts like airlines and cruise lines. I actually have a research piece in the works telling you to buy the peripheral travel stocks like Expedia (EXPE), Booking Holdings (BKNG), Live Nation (LYV), Madison Square Garden (MSGE) and, indirectly, casinos (WYNN), (MGM) and Uber (UBER).

Q: What about Regeneron (REGN) long term?

A: They really need to invent a new drug to cure a new disease, or we have to cure COVID so all the non-COVID biotech stocks can get some attention. The problem for Regeneron is that when you cure a disease, you wipe out the market for that drug. That happened to Gilead Sciences (GILD) with hepatitis and it’s happening with Regeneron now with Remdesivir as the pandemic peaks out and goes away.

Q: What about Chinese stocks (FXI)?

A: Absolutely yes; I think China will outperform the US this year, especially now that the new Biden administration will no longer incite trade wars with China. And that is of course the biggest element of the emerging markets ETF (EEM).

Q: Will manufacturing jobs ever come back to the US?

A: Yes, when American workers are happy to work for $3/hour and dump unions, which is what they’re working for in China today. Better that America focuses on high added value creation like designing operating systems—new iPhones, computers, electric cars, and services like DocuSign, Zoom—new everything, and leave all the $3/hour work to the Chinese.

Q: What about long-term LEAPS?

A: The only thing I would do long term LEAPS in today would be gold (GOLD) and silver miners (WPM). They are just coming out of a 5-month correction and are looking to go to all-time highs.

Q: What about your long-term portfolio?

A: I should be doing my long-term portfolio update in 2 weeks, which is much deserved since we have had massive changes in the US economy and market since the last one 6 months ago.

Q: Do you have any suggestions for futures?

A: I suggest you go to your online broker and they will happily tell you how to do futures for free. We don’t do futures recommendations because only about 25% of our followers are in the futures market. What they do is take my trade alerts and use them for market timing in the futures market and these are the people who get 1,000% a year returns. Every year, we get several people who deliver those types of results.

Q: Will people go back to work in the office?

A: People mostly won’t go back to the office. The ones who do go back probably won't until the end of the summer, like August/September, when more than half the US population has the Covid-19 vaccination. By the way, getting a vaccine shot will become mandatory for working in an office, as it will in order to do anything going forward, including getting on any international flights.

Q: What is the best way to short the US dollar?

A: Buy the (FXE), the (FXY), the (FXA), or the (UUP) basket.

Q: Silver LEAP set up?

A: I would do something like a $32-$35 vertical bull call spread on options expiring in 2023, or as long as possible, and that increases the chance you’ll get a profit. You should be able to get a 500% profit on that LEAP if silver keeps going up.

Q: What about agricultural commodities?

A: Ah yes, I remember orange juice futures well, from Trading Places, where I also once made a killing myself. Something about frozen iguanas falling out of trees was the tip-off. We don’t cover the ags anymore, which I did for many years. They are basically going down 90% of the time because of the increasing profitability and efficiency of US farmers. Except for the rare weather disaster or an out of the blue crop disease, the ags are a loser’s game.

Q: Can we view these slides?

A: Yes, we load these up on the website within two hours. If you need help finding it just send an email or text to our ever loyal and faithful Filomena at support@madhedgefundtrader.com and she will direct you.

Q: Do you have concerns about Democrats regulating bitcoin?

A: Yes, I would say that is definitely a risk for Bitcoin. It is still a wild west right now and there are massive amounts of theft going on. It is a controlled market, with bitcoin miners able to increase the total number of points at any time on a whim.

Good Luck and Stay Healthy

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

November 4, 2020

Tech Letter

Mad Hedge Technology Letter
November 4, 2020
Fiat Lux

Featured Trade:

(WHICH JOBS ARE ON THE LINE NEXT?)
(CVX), (CRM), (ALL), (SCHW), (XOM), (RTN)

Which Jobs are on the Line Next?

Tech Letter

For every job created by Amazon during the pandemic, there are 10 jobs losses in the brick and mortar retail sector.

That is happening as we speak.

The next phase of job losses will move up the value chain and hit those precious $100,000 per year jobs precisely because the advancement of technology will allow management to seamlessly substitute these highly paid workers with a digital or automated solution.

The evidence is starting to follow through.

In the last few days, ExxonMobil, Chevron (CVX), Charles Schwab, and Raytheon have announced plans to cut thousands of white-collar jobs.

Wells Fargo, Goldman Sachs, Salesforce (CRM), Allstate (ALL) and CNN owner WarnerMedia have already announced a massive wave of firings too.

Corporate America's belt-tightening provides more evidence of the fragile and unforgiving nature of this pandemic.

Global consultant McKinsey & Company forecasts over 800 million global workers could be replaced by robots by 2030.

The most exposed jobs on the cutting block consist of artificial intelligence (AI), a subset of automation where machines learn to use judgment and logic to complete tasks.

Stanford University doctoral candidate Michael Webb analyzed the data for 16,000 AI-related patents and more than 800 job descriptions and found that highly educated, well-paid workers will become more impacted by the spread of AI.

Bachelor’s degree holders would be exposed to AI over five times more than those with only a high school degree.

That’s because AI is especially superior at completing tasks that require planning, learning, reasoning, problem-solving, and predicting — most of which are skills required for white-collar jobs.

Other closely related jobs are in robotics and software and are likely to impact the physical and routine work of traditional blue-collar jobs.

This will sap the demand from everything from home buying and shopping to credit card defaults if a large swath of the U.S. population earns no income.

The rolling wave of white-collar layoffs is very impactful because this is the group that possesses the most purchasing power in the U.S. economy which is a consumption-driven economy.

Evidence is starting to pop up all over the board.

For instance, Charles Schwab (SCHW) said it would cut about 1,000 jobs following its takeover of TD Ameritrade.

Efficiencies, or the lack of it, have never been more magnified where companies are slashing redundant jobs upon mergers.

In the short term, white-collar workers have fared far better during the pandemic than blue-collar workers, who tend to be younger and have less education.

This is because white-collar workers have been able to operate from a home office where the bulk of blue-collar workers do not have that option.

But in the long term, technology through automation is also going to swallow up these higher-paid workers.

That is not to play down the trend of mass furloughs and layoffs in various industries, but technology and artificial intelligence will be deployed to cut high-paying jobs when it improves.

I believe that in 10 years or less, the technology will improve by leaps and bounds to the point where companies are able to install and scale it globally in an instant.

Those jobs will then go poof!

Nearly 40% of low-income workers lost their jobs in March and it is likely that the U.S. economy will never see that level of peak employment again.

Many people were rehired or found jobs elsewhere as the US economy reopened. After peaking at nearly 15% this spring, the unemployment rate has descended steadily, falling to 7.9% in September.

The mounting signs of white-collar job cuts cannot be ignored.

In another example, Allstate announced in late September that it would lay off 3,800 employees.

The insurance giant blamed the job cuts on the lack of driving during the pandemic and the refunds given to customers.

The pandemic resulted in fewer accidents, thus needing fewer claims people.

ExxonMobil (XOM) announced it will cut 1,900 jobs in the United States, mostly at its headquarters in Houston.

A broader reorganization by Exxon will slash 14,000 jobs by the end of 2022.

Energy companies have been disproportionately impacted because the demand shock has halved oil revenues.

This list goes on and on as Raytheon (RTN) disclosed it will lay off 4,000 contractors, mostly engineers, as well as 1,000 corporate employees.

And that's on top of Raytheon previously announcing plans to lay off 15,000 employees because of the downturn in the aviation industry.

Government, local and federal, has to confront a massive loss of revenues which will affect its ability to hire and maintain government workers.

Layoffs could rise among government workers because the pandemic has set off an epic budget crunch at states and local municipalities.

Eventually, whether it's 5 or 10 years down the line, the next set of solutions will inherently lead to the A word which every employee dreads – Automation.

Going 100% remote means face to face communication has slowed down to a crawl and management is less inclined to reward employees who “put on a good face” and for the sake of their own survival have turned to employees that perform well.

There will be an ultimate race to the bottom with spiraling wages and human workers unable to justify their place when competing with machines.

This inevitably leads into the world of analytics to management part of the staff for better or worse and many companies have gone from all to nothing in an instant.

I know this is a lot of information to process, but the ones getting on board with the new normal will thrive and the ones late to implement the necessary measures will flounder.

2020 has been a strange year, and get ready for new twists and turns in the last two months.

Each ensuing year will most likely get weirder because of the heavy introduction of automation into human lives.

September 18, 2020

Diary, Newsletter, Summary

Global Market Comments
September 18, 2020
Fiat Lux

Featured Trade:

(SEPTEMBER 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (TSLA), (DIS), (NKLA),
(GM), (PYPL), (FXI), (XOM), (KCAC),

September 16 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Summary

Below please find subscribers’ Q&A for the September 16 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: Is the Russian vaccine real or just a publicity stunt?

A: I would say it’s real. Russia is much more prone to experimentation, that is a luxury they have. If they kill off a million people because the vaccine is no good, there is no litigation risk. So, it may work, but it is a high-risk drug.

Q: What will a contested election mean for the markets?

A: The Dow (INDU) will be down 2,000 points in one day. But I don’t think it’s going to happen; I think the media has greatly exaggerated the chances of a Trump victory. I don’t think there are any undecided votes now. The only way you’d be undecided by now is if you’ve lived in a care for the past four years. The market has got this completely wrong, and once it’s clear who won, you’ll get a monster rally in the stock market that goes until this year’s end, and the game from here until election day is to try to get into the market as low as possible before then.

Q: Do you think big tech is a crowded trade, and what do you think will eventually happen?

A: It is an extremely crowded trade; eventually it will go down big. If you remember the Dotcom Bubble, everything dropped 80% or went to zero. Having said that, we’ve never had this amount of Fed stimulus before, so we should go higher first, especially after the election. The fact is that the big techs are growing gangbusters—30%, 40%, or 50% a year so spectacular multiples are called for. This is the argument Mad Hedge Fund Trader has been making for the last 10 years, by the way.

Q: Do you think the residential real estate market will crash before or after the election?

A: I would say well after the election because I don't think it will crash until 2030. All these millennial buyers are out there in droves, interest rates are at record lows, and you have this massive work-at-home trend going on, which is going to be largely permanent. So, all of a sudden, the demand is huge for homes that you can convert into a kitchen with 4 home offices. A lot of companies have discovered this to be a very profitable way to work. So, I don’t see any crash happening in housing, perhaps even in my lifetime. We’re not seeing all the excesses in housing now that we saw in the Great Recession 13 years ago.

Q: How will Joe Biden’s election change the wealth of America’s finances?

A: Move money from the extremely rich to the middle class. That is the one-liner. It looks like any tax increases for individuals who make less than $400,000 a year will be minimal. The big hit will be those that make over a billion a year, and that category could even see Roosevelt level tax rates of 90% or more.

Q: What do you think of the condo market in San Francisco?

A: It is terrible now with prices down about 20%. We’re seeing exactly the same thing in New York City as people flee to the suburbs, and in the meantime, we have bidding wars going on in the outer suburbs. This will continue for about another year until people pour back into the city once the pandemic all-clear signal is given. That may be in about two years.

Q: Tesla (TSLA) has retraced half of its recent losses; do you think it will go another leg higher?

A: At this point, Tesla is an extremely high-risk stock. I would only want to be day trading it. The overnight gaps are so enormous. At $500 a share, it’s discounting a best-case scenario for 2025 already, so that is kind of stretching it. Better to buy the car than the stock.

Q: Do you have any other names in the EV market to recommend?

A: Absolutely not; most of the other entrants in the market have no cars and no mass production abilities, which is the real challenge, and are lagging Tesla with terrible designs. Tesla essentially has the lock on that market, and a 10-year head start. They are accelerating their technology and the only other serious producer in volume is General Motors (GM) with their Bolt, but that hasn’t really taken off. It is cheap at $30,000 but the next thing to happen is that Tesla will drop the price of their model Y below the price of the Bolt which will kill it off. But no, I wouldn't touch any of these other things. The future is all electric. Many people also underestimate the decade-long torture Tesla had to go through to get to where they are. I remember it because I have been with Elon from day one during his PayPal (PYPL) days.

Q: Would you sell Disney (DIS) here at $130? The economic climate for 2021 doesn’t look great for public mass entertainment.

A: That is all true, but their streaming business, Disney Plus, is taking off like a rocket. They just released Mulan, which I watched over the weekend with my kids and loved it. It will undoubtedly be the largest streaming movie release in history once we get a look at the numbers next month. So, they are moving into the online business at an incredible speed, and it may be enough to offset the enormous losses they are running from their hotels, cruise ships, and parks. And also, this is a reopening play big time—one of the few quality reopening plays out there—and the only reason to sell Disney here is if you think the corona epidemic will get dramatically worse and stay worse well into next year.

Q: What about battery names?

A: Batteries are still either owned by giant companies like Tesla or they’re small startups that have a nasty habit of going bankrupt. There really aren't any good clean publicly-listed plays on batteries in the markets these days.

Q: What about a short on Nikola (NKLA)?

A: If I were an aggressive day trader, that would be right in my sights. You can expect nothing but bad news to come out about Nikola. Taking a truck with no motor and then rolling it downhill and calling it a successful trial just invites short-sellers by the hoards. It’s already off 65% from its peak.

Q: Why do you say there's no future in hydrogen?

A: You need to build a large national hydrogen distribution network to make this economically viable and it’s just too expensive. Electricity infrastructure is already in place and just needs to be upgraded and modernized. Electricity is also infinitely scalable in improvements in power output, but hydrogen is only capable of straight-line improvement. No contest.

Q: What about the Solid-State Batteries?

A: I actually wrote a piece about this earlier this week. Solid-State Batteries could allow a 20-fold increase in battery efficiency for cars and houses and that may only be 2 or 3 years off as there are several in development now. QuantumScape (KCAC) is the listed leader there. Bill Gates is a major investor (click here for the link).

Q: Can we play a short-term bounce in big oil like ExxonMobile (XOM)?

A: You can, but remember, this is a trading play only, not an investment play. The long-term future for these companies is to go to zero or to get into another line of business, like alternative energy.

Q: What will happen to the market after the Fed speaks today?

A: My guess is stocks will rally as long as Jerome doesn’t say anything horrendous like “this is your last freebie; I’m raising rates at the next meeting,” which he is not going to say at the last Fed meeting before the presidential election.

Q: I am trying to get through all the fluff of misinformation out there; I want your opinion on who is winning the US-China (FXI) trade war.

A: The simple answer is that China has been winning all along. The proof of that is that their economy is growing and ours is shrinking. That’s because China managed to cap their Corona deaths at 4,000 and ours are at 200,000. In the meantime, the technology improvements in China have been enormous over the last 4 years, so none of the trade war issues, which by the way, were all focused on the lowest margin businesses that China did, have had any effect. If anything, it’s forced China to offshore their low margin business to cheap countries like India, Vietnam, and Bangladesh so they disappear as China trade. I always thought the China trade war was a mistake—it’s always better to trade with someone than go to war with them. I’ve done both and prefer the former.

Q: Do you think Biden is bullish for stocks, considering all the regulations that will be put back?

A: I don’t think there will be many regulations put back except for the energy industry, which has essentially operated regulation-free for the last three years. All of those controls—on flaring, on pipelines, and so on—those will all get put back because they were implemented by executive order, which can be reversed with the stroke of a pen. I don’t see much regulation anywhere else in the economy coming back. And in fact, since Joe Biden pulled ahead in the polls in May, the stock market has gone up almost every day. So clearly, the market thinks Joe Biden will be positive for stocks, and the possibility that he might implement an extra $6 trillion dollars in fiscal spending once in office is the reason why. You have to look at what these people do, not what they say. And my bet is that since Trump set the precedent for record deficit spending, Biden will continue that. And we’ll only worry about things like deficits when the inflation rate tops 5%, when interest rates go back to 10% in five years—all the reasons that caused the massive rise in deficits during the late 70s and early 80s.

Good Luck and Stay Healthy

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

Sitting Pretty

July 8, 2020

Diary, Newsletter, Summary

Global Market Comments
July 8, 2020
Fiat Lux

Featured Trade:

(TRADING THE BLUE WAVE STOCK MARKET),
(FB), (AAPL), (MSFT), (AMZN), (ADBE), (SQ), (PYPL), (CRM), (SGEN), (REGN), (ILMN) (FEYE), (PANW), (AMD), (MU), (NVDA), (TSLA), (LEN), (PHM), (KBH), (XOM), (CVX), (XOM), (RTN), (NOC), (LMT), (KOL), (X), (GE)

Trading the Blue Wave Stock Market

Diary, Newsletter

At this point, it is possible that the president may lose the November election.

He is 14 points behind Democratic candidate Joe Biden in the polls. The odds at the London betting polls have him losing by a similar amount. My old employer The Economist magazine in London gives him a 10% chance of winning using a mix of economic and polling data.

And this assumes the election is held today. The fact is that the president is digging himself into a deeper hole every day, taking the wrong side of every issue confronting the country today. He seems to be refighting the Civil War….and taking the Confederate side when even the State of Mississippi is taking its symbol off its flag.

So, what will the post-Trump world look like? Will taxes go through the roof? Will the market crash? Is it time to go 100% cash, change our names, and move to a country with no US extradition treaty?

I don’t think so. In fact, with stocks soaring to meteoric new highs every day, the market expects that a Biden administration will be great news for stocks, perhaps the best ever.

Taxes will certainly go up. Favorable tax treatment of the energy, real estate, and private equity funds will get axed. Carried interest will finally become history. Marginal tax rate on net income over $1 billion could get hiked to the Roosevelt levels of 80-90%.

Biden has already announced an increase in the corporate tax rate from 21% to 28%. That will cut earnings for the S&P 500 by $9 a share. But the stock market is not the economy, with S&P earnings only accounting for 10% of US GDP.

And the $9 companies lose in taxes they will make back and more from new government spending, which isn’t slowing down any time soon. Some 14,000 American bridges need to be rebuilt. The Interstate Highway System is a shambles. High-speed broadband needs to go rural. The electrification of the US needs to accelerate to accommodate the millions of electric cars headed our way.

I believe that eventually, 51 million Americans will lose their jobs as a result of the pandemic. Perhaps a third of those are never coming back because the future has been so accelerated. That will leave the broader U-6 Unemployment rate stuck in double digits for years, maybe for decades.

So, we’re going to need some kind of Roosevelt style programs like the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC) who built much of the monolithic infrastructure that we all enjoy today.

At least 300,000 educated workers could immediately be put to work in contact tracing. Millions more could be employed in national infrastructure programs. One thing is certain. A new administration won’t stop massive government spending, it will simply redirect it.

And let's face it. A Biden win would bring a big expansion of Obamacare. With the best healthcare technology in the world, private industry has done the world’s worst job controlling the pandemic.

Countries with well-run national healthcare systems like Australia, New Zealand, Japan, and Singapore have almost wiped out the disease. This is why I am avoiding the healthcare sector for the foreseeable future.

Who are the big winners of all this? Big tech (FB), (AAPL), (MSFT), (AMZN), medium tech (ADBE), fintech (SQ), (PYPL), the cloud (CRM), and biotech (SGEN), (REGN), and (ILMN).

Cybersecurity will always be in demand (FEYE), (PANW). The global chip shortage will continue to worsen (AMD), (MU), (NVDA).

And Tesla (TSLA)? What can I say? It is already up nearly 100-fold from my initial $16.50 recommendation in 2010, and I’ve bought three Tesla’s (two S’s and an X).

Followers of the Mad Hedge Trade Alert service know that I am already long these names up the wazoo, and is why I am up 26% in 2020. It’s simply a matter of all pre-pandemic trends hyper-accelerating, which we were already tapped into.

If you have to add a purely domestic sector, a gigantic Millennial tailwind will keep homebuilders bubbling for years like (LEN), (PHM), and (KBH).

And while you won’t find me as a player here, retail will recover. The sector has not prospered during the current administration, thanks to a trade war with China and the pandemic.

And the losers? There is a classification of “Trump” stocks you don’t want to be anywhere near. Energy will do terribly (XOM), (CVX), (XOM), with Texas tea possibly revisiting negative numbers. If you take away the tax breaks, energy hasn’t really made money in decades.

Defense stocks (RTN), (NOC), (LMT) will take a big hit from budget cutbacks and fewer wars. Coal (KOL) will finally get shut down for good, probably sold to China in bankruptcy proceedings. Industrials will continue to lag (X), (GE), with no more free handouts from the government and no technology advantage.

So if Biden wins, you don’t need to slit your wrists, hang yourself from the showerhead, or cease investing completely. Just take your stock market winnings and go out and get drunk instead.

June 29, 2020

Diary, Newsletter, Summary

Global Market Comments
June 29, 2020
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or COVID-19 IS BACK!)
(SPX), (TLT), (TBT), (TSLA), (BAC),
(XOM), (CCL), (MGM), (WYNN), (UAL)

The Market Outlook for the Week Ahead, or Covid-19 is Back!

Diary, Newsletter, Research

This was the week that the Coronavirus came back with a vengeance.

The market had been backing out the pandemic for the past three months. Now it is abruptly pricing it back in.

Hospitalizations soared in 16 states to new all-time highs, as the first wave continues to grow exponentially. Deaths have topped 125,000. The good news is that only 5,000 died last week. That is nearly two 9/11’s, or 12 Boeing 747’s crashes worth of victims.

Apple has closed eight stores in Texas and another 14 stores in Florida. Arizona is on the verge of running out of hospital beds. This is going to weigh heavily on the market until we see another interim peak. It looks like the last one was certainly a false summit, in climber’s lingo.

What was really interesting last week is what DIDN’T happen. While the “reopening” stock LIKE banks (BAC), energy (XOM), cruise lines (CCL), hotels (MGM), casinos (WYNN), airlines (UAL) were absolutely slaughtered, gold, technology, and biotech barely moved. It says volumes about what happens next. You want to use selloffs to buy quality at a discount, not garbage that is going to zero.

Technology and biotech are where you want to focus your buying of stock, futures, and LEAPS. The next big dip is the one you buy.

You can count on the government stepping in and announcing more stimulus on the next down 1,000-point day. Thursday mornings seem to be a favorite time, right before the next horrific Weekly Jobless Claims are announced, which also seem to be reaccelerating.

The Fed can do this for free, without spending any money, simply by expanding the asset classes eligible for quantitative easing. Some $8 trillion in QE certainly buys a lot of friends in the market. I believe that any run in the S&P 500 (SPX) down to 2,700 will be met by government action.

Treasury Secretary Steve Mnuchin expects another stimulus package in July, but only if he gives away the store to Nancy Pelosi. Just what the market needs, more stimulus. Most of the 40 million out of work are still jobless. It could be $1 trillion worth of stimulus checks and other giveaways headed for the stock market, like the last lot. My kids still haven’t spent their first checks! We’re going broke anyway, so why not?

The stock market is clearly running out of gas, at a 26 multiple, the highest since the Dotcom bubble top. Any more stimulus may simply go into bank deposits. The risk/reward for new positions here is terrible. It sits nicely into my sideways range scenario for the rest of the year.

Existing Home Sales are down 9.7% in May, the worst in ten years. They are off 26.6% YOY, the worst figure since 1982 when home mortgage rates were at 18%. Inventories are down an eye-popping 18.8% to 4.8 months as sellers pulled listing to avoid virus-infested buyers. The first-time buyers live, but the action is shifting out of condos and into single family homes in the burbs.

Weekly Jobless Claims jump 1.5 million, far worse than forecast. It looks like we are getting a second wave of jobless as Corona ravages the south and business hangers-on throw in the towel. Some 20 million Americans remain on state unemployment benefits, which will start to run out shortly. Will stocks look through this?

Banks are banned from paying dividends and buying back shares, orders the US Treasury. The Fed estimates that pandemic-related loan losses could reach $700 billion, wiping out their capital. Every bailout comes with a pound of flesh. The banks have made billions off of stimulus loans, like the PPP. The banks rallied because the news wasn’t worse, like a mandatory 5% share giveaway, which happened last time. Buy banks like (JPM), (BAC), and (C) on an expected yield curve steepening.

Tesla (TSLA) is now the world’s most valuable car company, with a market capitalization of over $180 billion. It just passed Toyota Motors (TM). (TSLA) is now worth more than the entire US car industry combined. That could double very quickly. The upcoming model Y is expected to be its biggest seller and a third production plant will be announced imminently. The rush out of public transit and into private cars simply accelerated a pre-existing trend or the company.

When we come out on 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 respectable week, taking in a welcome 3.87%, bringing June in at +2.56%. Despite the market diving nearly 10%, we pulled in big profits from our short positions and captured accelerated time decay on our longs. My eleven-year performance stands at a new all-time high of 368.75%.

That takes my 2020 YTD return up to a more robust +12.88%. This compares to a loss for the Dow Average of -12.3%, up from -37% on March 23. My trailing one-year return popped back up to 53.27%. My eleven-year average annualized profit recovered to +34.91%.

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, June 29 at 11:00 AM EST, US Pending Home Sales for May are out.

On Tuesday, June 30 at 10:00 AM EST, the April Case-Shiller National Home Price Index is published.

On Wednesday, July 1, at 9:15 AM EST, the ADP Private Employment Report is released. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are published.

On Thursday, June 2 at 8:30 AM EST, Weekly Jobless Claims are announced.

On Friday, June 3, at 8:30 AM EST, the June Nonfarm Payroll Report is printed. Since last month was a large overstatement, June could be positively diabolical. The Baker Hughes Rig Count is out at 2:00 PM EST.

As for me, I am rushing out and doing errands, like a trip to the barber, haircut, hardware store, dry cleaners, the dentist, and the doctor in case the California economy shuts down once again. We’ve been slightly open for a few weeks.

That may be all we get this year.

Stay healthy.

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

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