July 30 Biweekly Strategy Webinar Q&A

Below, please find subscribers’ Q&A for the July 30 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: How long does it take for a full charge on the Tesla Model X (TSLA)?

A: 30 minutes now for a full 250 mile charge with the new 250-watt chargers. That’s barely enough time to eat an In and Out Burger and get back. By the time you walk to the restaurant, it’s almost already charged, and then they bill you for excess time at a charger if you’re not being charged. They charge you like a dollar a minute or something like that if you’re hogging a charger and you’re fully charged. So very different than it used to be, is all I can say.

Q: We just got the GDP print at 3% annualized, or 0.7% on the quarter. How come we didn’t get a much lower number?

A: Because all economic statistics this year are going haywire, because there’s some massive swings in the economy and the international trading situation. Almost all of the growth in the recent quarter came from a collapse of imports. Of course, when you do the GDP calculation, you subtract imports, you add back exports. So, with people having front-run the tariffs in the first quarter, they now have enough inventory for the whole year, so of course, you would expect a collapse in imports and tariff revenues for the government. Expect that to come in the near future. It means that while the GDP print is okay, the actual underlying data behind it is incredibly weak, which is why jobs are collapsing, and business worldwide is shrinking.

Q: Would you sell Nvidia (NVDA) shares at these levels, and keep some powder dry in case we get a sell-off?

A: I would. Jensen Wang is selling Nvidia, the CEO of the company, sold about a billion dollars’ worth of stock so far this year—so he thinks it’s time to sell. If you sell like half your position, even a 10% correction will give you an opportunity to make a lot more money overall. We’re at $178, up $3 today, so you also might want to sell short the $200 September call options for $3.50 and take in the premium income, which will lower your average cost and reduce your volatility. You should be doing this every month after we’ve had almost a 100% move in 4 months in Nvidia.

Q: How many months out should I sell short the NVIDIA calls?

A: Always do the front month. We only have 2 weeks left in the August expiration, so there’s no money left in that, but I bet you if you go out to September, you’ll get a very generous premium on that. And remember, sell short one call option for every 100 shares you own. Remember, there’s a 100X multiplier on all these options, so you want to perfectly hedge your position. If you rise above 200, (first of all, you think you died and went to heaven,) but second, you have a perfect one-to-one match between your options exercised into shares, and the number of shares you have. You don’t want to take any accidental net long or short positions by mismatching your shares versus your option short.

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Q: The markets have historically performed poorly in the second year of the presidency. Are we headed for a crash next year?

A: Well, there are a lot of technical analysts who think we could be headed for a crash next year. And I’m meaning not a little one, not a 20%, but more like a 50%. We are 40 months into this current bull market, which is pretty long by bull market standards. If the Fed doesn’t cut interest rates at the end of the year, then you could get a serious stock market selloff, and with inflation rising, that is a possibility. The only thing levitating the market right now is AI, and the prospect for interest rate cuts, so if those don’t show, then it could be downside time for the stock market. That’s why I’m just trading month to month right now—the long-term future is so unpredictable that you’re not willing to take your retirement funds and make long-term bets at these levels. You know, when the S&P 500 (SPY) was at $4,800, that’s another opportunity to do that—the last opportunity. Up here, you know, $6300 or $6400? No, thank you.

Q: Would you be considering a put spread in General Motors (GM)?

A: Actually, I consider it almost every day. You know, I tried to sell the recent rally, and then the trade deal with Japan came through, which put only a 15% tariff on Japanese cars, and of course, the stock dropped 10% that day. So, the outlook for the auto industry under this administration looks terrible. For some reason, they seem to hate Michigan, and they sold the US auto industry down the river. Almost all the policies are anti-Michigan, or anti-Canada, which is just across the river. I’d be willing to short GM on a rally and do a put spread, something like a $65-$60 vertical bear put spread.

Q: Any chance that bonds will rally among the lower interest rate plays?

A: Long bonds will rally, but not very much. The expectation is that even if the Fed cuts by a full 100 basis points in the next year, long bonds may only drop from 4.3% to 4.2%. I mean, you’ll get almost no benefit from cutting interest rates. Of course, most corporations borrow somewhere around the long bond rate of 4.3, so any action by the Fed could be muted by the fact that nobody wants to buy long bonds anymore—not foreign governments, not central banks, not American wealthy, nobody. So, we’re not doing anything in the bond market right now; the volatility is just too small to trade.

Q: If Powell drops rates sharply like Trump wants, what would be the effect on the economy and inflation?

A: Well, the economy will stop shrinking, for sure. It’ll help the non-AI half of the economy and the stock market. AI doesn’t need lower interest rates, and that’s where all the action is happening now. All of these massive investments being made by the AI companies are entirely in-house-cash financed and are also helped with tax subsidies. They don’t need lower interest rates because they don’t borrow. If anything, most of the big AI companies are net lenders to the system, like Apple (AAPL), so no effect on AI, really. It’s everything else that stops doing so horrible that does borrow. And for housing it definitely would help, although the effect may be mooted if long bonds don’t go up in price.

Q: Starbucks (STBX) posted another sales decline. What gives? I thought their business was indestructible.

A: Well, it turns out their business is destructible, and they’re being badly affected by the slowdown in sales in China, where there’s a big anti-American sentiment right now; and of course, Starbucks has thousands of stores in China. Also, they’re not exactly a new idea, you know, when they first came out in the 1980s, I thought, “Finally decent coffee in the United States!” That’s not such a big deal anymore, and they’re getting expensive, and the service has gone downhill. Plus, a lot of their shops are kind of shop-worn and seedy-looking now. What may have killed them in California is when they required the amount of calories to be posted for every drink. When I saw that my favorite drink was 600 calories, I never went back again.

Q: Is now a good time to invest in multi-unit living complexes?

A: In decent metro areas, I would say yes, because they are an interest rate play and they will rise in value as interest rates fall. That sector is a highly leveraged sector—very dependent on borrowed money. So, if you can find some of the housing REITs, those are also going to be buys. You know, this whole area falls under the REIT category, so it’s definitely a buy down here, betting on interest rates sometime.

Q: Will American manufacturing return to the U.S or not?

A: Absolutely not. Who wants to go from $7 an hour to $70 in labor costs? That is the choice. If you have factories in both Mexico and the U.S., like all car companies do, it makes sense to max out your production in the US in existing factories and run down your production in Mexico. But people will absolutely not build more factories here in the US, which may become useless by the time they’re finished, in the next administration.

Q: Is this the end of European car manufacturers?

A: No, there will always be a demand for quality, but you may see a lot of consolidation. Europe has way too many carmakers given the size of the market there, and they’re having to deal with Chinese competition now. So you can see big consolidations in every country—in Italy, in Germany, in Sweden, and France, where all the big car makers are, and in England, for that matter, where many companies like Jaguar, MG,and  Land Rover have already been sold off to foreigners. The Germans own Rolls-Royce now, which is why all their new cars look like tanks.

Q: Do you think China (FXI) has an over-capacity problem compared to their own consumption? And how is that affecting the economy?

A: Absolutely, China has an overcapacity problem. That’s why they’re dumping products overseas at cheap prices. That’s why we have a 100% tariff on Chinese car imports in the U.S, which Biden imposed. You know, they are the preeminent export economy in the world, and they overdid it, and they’re trying to stimulate domestic consumption to eat up some of that production. So far, they have not been successful, and that has been a major drag on the Chinese economy.

Q: If copper is a good play, why is Freeport McMoRan (FCX) going sideways?

A: Well, copper just nearly doubled off of the April bottoms, so that’s a good reason there. But I would look to buy any dips in Freeport McMoRan (FCX), which just crashed because of the new 50% tariff. The outlook for copper for the long term is spectacular. We’re entering peak copper demand because of the tripling of the power grid, and it’s just a matter of digesting recent enormous price gains.

Q: Are you raising your (SPX) forecasts on the stronger-than-expected GDP forecast?

A: No, because while the headline number looks okay, once you dig into the numbers, it’s much weaker than we expect. So no, I’m not raising my forecast, and I’m looking for $6,500 for the top of the market this 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 DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Good Trading

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