October 15 Biweekly Strategy Webinar Q&A

Below, please find subscribers’ Q&A for the October 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: When would be a good time to get into gold (GLD)?

A: Well, the answer may be never. We are now getting what they call a hyperbolic move to the upside, where it just goes up every day (for weeks, if not months), and you do not touch those with a 10-foot pole. We may go all the way to 5,000 before this thing has a down day. I’ve seen these before, and commodities especially are prone to this kind of move because the liquidity of the underlying is so poor. So, I don’t know; I sold all my gold last week, but then I had call spreads that were at max profit, and I couldn’t make any more—there was only downside. So we’ll just have to wait and see. Right now, nobody can tell you. What we are seeing are rolling short covers and, of course, the London Bullion Exchange shutting down because they can’t deliver silver (SLV). It’s a very positive development that happens about once a century.

Q: What is your year-end target for the S&P 500 (SPX)?

A: Well, it’s almost impossible to say, depending on what comes out of Washington by the day, if not by the hour. As you can see, these 1,000-point sell-offs in the Dow ($INDU) can happen at any time without warning and completely out of the blue, as can the 1,000-point rallies—and we’ve had three of those in the last five trading days. I would say if the government shutdown does not end, it is safe to say that we might give up all the gains we’ve made this year in the stock market. If it does end shortly, and the economic damage is limited to a few tenths of a percent, then we could take a shot at new highs—maybe the S&P (SPX) reaching 7,000. There still is a ton of liquidity in the system, and it is growing by the day. The best reason in the world to buy stocks is because they’ve gone up, as with everything else. That is my view on that.

Q: Would you say AI is in a bubble or not, and which stocks do you like here?

A: The answer is absolutely—AI is in a bubble. The question is, is it 1996 or 1999? I’m more in the 1996 crowd, at least in terms of development of the technology, but how much of that is already in the stock market? I think we can go for another year or two with increasing volatility. I remember back in 1999, the VIX reached at least 90%, which I think was the old high. So, the answer is higher highs—but fasten your seatbelt and for widows and orphans, this may not be your kind of market. If you are long S&P index funds or Vanguard funds, just keep them. Long term, stocks always go up. Don’t trade yourself out of your retirement.

Q: What do I expect from the coming earnings report?

A: Well, last earnings cycle in July, 88% of all earnings announcements were beats, and I suspect we’ll get the same this time. Companies drastically reduced their expectations in the wake of the new trade war, and they are slow to move them back up. That creates an inbuilt structural bias for beats across the board. Of course, every beat so far seems to initiate a big rally and then a big sell-off, like we saw in Goldman Sachs (GS) yesterday. Goldman Sachs produced outstanding earnings—which we always expect anyway because they’re Goldman Sachs—but then it sold off 45 points, dropping all the way down to $738, giving heart attacks to a few of the long players.  Then it made it all the way back up to the $780s again, so it’s that kind of market.

Q: ​​What do you think about Palantir (PLTR)?

A: I loved Palantir when it went public five years ago. We recommended it, and it didn’t move at all for eight years. Then it just went absolutely bananas with the AI boom. I think Palantir goes to higher highs, and it’s one of the signature stocks of this bull market. It will keep going up to insane levels and then have a gigantic crash. That’s my view on Palantir (PLTR).

Q: Why are the bank selloffs happening on top of great earnings?

A: It’s a classic “buy the rumor, sell the news” type move. Everyone buys the stock in the run-up to the announcement, expecting great earnings, and once they’re out, there’s nothing to drive the stock up for three more months. That’s why all the short-term money takes profits there. However, the long-term players jump in and buy these bottoms because they represent a gift—an opportunity to get into a stock they may have missed the first time around. That’s why I’m so heavy into financials this year. The fundamental support for these companies right now is absolutely enormous.

Q: Will unemployment numbers, when we get them, crater the stock market?

A: No, they will have the opposite effect. So far, every bad jobs report has increased the probability that the Federal Reserve will cut interest rates, leading to a hyper-liquidity situation where stocks go up and then eventually crash. I imagine that when the government does reopen—if it reopens—we will get horrific updates on the jobs figures, and people will be clamoring for interest rate cuts, which the Fed cannot ignore. That is why stocks are going up. They really haven’t sold off much, and there’s a lot of dip buying out there on the expectation of future interest rate cuts.

Q: What’s your thought on the Bitcoin meltdown?
A: My argument for Bitcoin (BTC) has always been that while the amount of Bitcoin issued each year is shrinking by design through the halving process, the number of derivatives being issued against Bitcoin is like a thousand to one. There’s no limit on derivatives, and it will be the derivatives that eventually take Bitcoin down. It’s the classic tail wagging the dog situation. Nothing makes that clearer than the price action we’ve seen in Strategy (MSTR) over the past month—it’s been collapsing while every other interest-sensitive play has been rocketing. So that is the argument against Bitcoin. It offers now protection of diversification whatsoever. It’s basically been falling three times faster than the S&P 500.

Q: How low do you think oil (UUP) can get?

A: Well, on this cycle, $50 a barrel is my target. My very long-term target is $10, which is basically the cost of the barrel. Oil will eventually become worthless as it is replaced by alternatives such as wind, solar, nuclear, and better designs of appliances that use much less electricity. No one ever counts that last item into their energy demand calculations, where the improvements have been astronomical. That’s been going on for 50 years, and we’ll continue for 50 more. That is the factor that no one counts in their electricity demand calculations.

Q: Do you have any good green energy stocks, or should I avoid the sector?

A: Avoid the sector for now. However, green energy stocks have been rising sharply because of the coming electricity crisis. Even without subsidies, many of these solar companies—like First Solar (FSLR) and Enphase Energy (ENPH)—have suddenly gone ballistic. That’s the reason why demand will be so great. A subsidy is no longer needed for them to increase sales. That might not be so true for your local solar installer, though, where I expect a large number of bankruptcies. So if you do an install solar, be careful who you pick—go with a large company with deep pockets.

Q: Do you expect the U.S. dollar (UUP) to do well against foreign currencies?

A: No, I don’t. I expect it to do terribly. Currencies with falling interest rates always fall the fastest in currency markets.

Q: Do you see any potential black swans upcoming that could hurt U.S. stocks?

A: It’s a black swan a day now. You can almost not count the potential black swans out there these days—with trade wars, hot wars, and hyper-liquidity going on all over the place. Take your pick. It would take me another hour to list the risks to the market right now. My answer is: buy, but keep your finger on the stop-loss button, ready to get out when the market crashes. I really should do a special report on coming black swans. Some are well-known, like a national debt crisis, while others—such as an upcoming electricity shortage and national brownouts —are not so clear. But it was clear enough 10 years ago that I spent $250,000 on a solar system to make my entire home and business grid independent.

Q: Are chip companies overbought right now, and if not, are there any names you can recommend?

A: Jill, I’m sorry to tell you—the entire sector is wildly overbought. I would avoid it like the plague. You can see the major stocks—like Nvidia (NVDA), Advanced Micro Devices (AMD), and Nvidia (NVDA)—have been moving sideways for three months. There are too many better places to go elsewhere with your money.

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, TECHNOLOGY LETTER, or JACQUIE’S POST, then WEBINARS, and all the webinars from the last 14 years are there in all their glory.

Good Luck and Good Trading,

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