January 28 Biweekly Strategy Webinar Q&A

Below, please find subscribers’ Q&A for the January 28 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Miami Beach, FL.

Q: Are Municipal Bonds (MUB) a good investment?

A: I would say yes. You get the tax-free status if you have a local muni bond that’s yielding over 5%, which you can get if you get the full federal, state, and local tax exemptions. But that is a very localized investment, and you have to talk to your local broker to find out if there are such securities. My guess is that since you are in Idaho probably have a few of these things available to you. And even if we get a financial crisis and the federal bond market crashes, local munis are a safe place to be. I remember in the 2008 financial crisis, a well-known talking head predicted that there would be 2,000 defaults in the muni bond market and the stock market going down 50%. In actual fact, we only got 20 muni defaults out of the tens of thousands of muni bonds out there.

Q: Why has gold (GLD) gone parabolic? It used to be so boring.

A: Well, that’s a very easy answer. First of all, gold is a classic inflation play, and with falling interest rates, a hot economy, and rising prices, gold is your classic inflation protection vehicle. To that, I can also add silver, copper, molybdenum, cobalt, platinum, palladium, and even oil—and basically anything hard. All of these precious and base metals have just had absolutely astronomical moves over the last several months, all on the inflation story, which is common to all of them. Chinese are buying copper ingots because they’re worried about inflation, and it’s safer than their own currency. Also, it’s safe to say that political instability in the United States now is at the highest point since the Civil War, and that has a lot of foreign investors getting scared out of our market, worried that things will get worse (which they almost certainly will). So, it’s all a great gold and silver inspiration, and while I did sell all my long-term positions in gold in my personal account last year, I am trading it on a weekly basis. I’m doing the weekly options buying out-of-the-money call spreads 5 days out. On Monday, I take a look at the world, see what it looks like, and if I like it, I buy in-the-money gold call spreads that expire in 5 days. In other words, I’ve become a meme trader, which is accounting for up to 40% of total market volume on some days.

Q: Will a weak dollar (UUP) support the stock market?

A: The answer is no. If you’re a foreign investor, even though the S&P 500 was up 17% last year in dollar terms, in foreign currency terms, it was up either only 2% or unchanged on the year. That is not an attractive investment if you’re a foreign investor. So it scares people away. Why buy a depreciating asset denominated in U.S. dollars? If foreigners are investing in U.S. stocks, they are hedging out their currency risk, and I’ve done many pieces on how to do that over the years. It also makes our exports cheaper because they’re priced in dollars. But if you’ve instigated a trade war against your trade partners, which the president has done, then that gets you nothing. People don’t want to buy your stuff at all if you’re being retaliated against with 25%, 50%, or 100% tariffs, which change daily. So at the end of the day, the tariffs will bring a smaller U.S. economy, slower economic growth, higher inflation, more unemployment, and smaller global growth. It’s bad for everybody. This week, Powell said that tariffs have boosted inflation from 2.0% to 2.8%. Globalization made everybody rich simultaneously. The retreat from globalization will make everybody poorer. Just a matter of numbers; there’s no political opinion there at all.

Q: Why is oil (USO) up on the Venezuela news?

A: The answer is that almost all of Venezuela’s infrastructure was built by American companies— Halliburton (HAL), Schlumberger (SLB) —and if the U.S. is going to rebuild, those will be the first companies to be invited back, because they still have the plans for the original plans. And that has created a short-term boost in the price of oil, but in the medium term, the outlook for oil still looks dire. If they succeed in bringing Venezuela from 800,000 barrels a day up to 4 million, that’s a 3.2 million barrel a day new supply on the oil market. If the Ukraine War ends, that will bring at least another 5 million barrels a day to the market. That is a giant swing in supply, and nobody wants to trade against that, so expect oil to remain weak and easily move into the 40s sometime this year.

Q: Do you think energy and healthcare are undervalued?

A: Absolutely, they are undervalued. They’ve been in bear markets for a long time. Healthcare seems to be under assault from the administration, so I’d avoid that. You had a 20% move down in United Health (UNH) this week because of freezing Medicare payments at this year’s levels—of course, they all lose money at that price. Energy, very cheap, very high-paying dividend stocks, I would play the service providers there: Schlumberger (SLB) and Halliburton (HAL). And it just had a year and a half LEAPS expire on Friday in Schlumberger. It just made it over the finish line at the upper strike for a 177% profit on that position.

Q: Can uranium (CCJ) continue to go up?

A: I would say yes. It’s part of the AI story. And there’s no doubt that demand for electricity is exploding in the latest freeze-out you have had in the United States, which I miss, because I’m in Florida. You had major shutdowns of power centers in Texas and other parts of the country. That means we are under-invested in our power grid. And it really has to increase four times in size. Uranium is part of that, and the new uranium designs are fantastic. But don’t ask me, I only worked for the Atomic Energy Commission out of college. All we did was look at nuclear designs.

Q: Is copper due for a correction?

A: When gold (GLD) corrects, everything corrects—the whole precious metals play. And the earliest that might happen is February 17th, which is the beginning of the Chinese New Year, who have been major buyers in all of these commodities. You know, you may not be buying copper ingots to hide under your bed, but the Chinese are, literally, because they have nothing else to buy as an inflation hedge, so all of these asset classes are moving in sync. And you have to watch all of them, all asset classes, to give you clues on the directions of any single one of them. That, by the way, has been my strategy for the last 55 years.

Q: I have a lot of short positions. Why am I losing money on all of them?

A: We haven’t seen anywhere close to market closing indicators to indicate that we’ve had a top. So you’re way too early on your shorts. I haven’t put any shorts out. And I love shorting. I make more money on shorts than I do longs. So wait, and again, the Chinese New Year is a good point to look towards, which is February 17th. It’s better to be late on a trade, especially on the short side, than to be too early, especially when things are going ballistic like silver, gold, and so on.

Q: Is silver overdue for a correction?

A: Absolutely, yes. The unknown is whether the correction is going to start from $115 and ounce or $150. And just for fun, I checked the 150 February 20 calls, and you can get $2 for those. It’s not bad money for a 4-week play, 50% out of the money. And if you want to be more aggressive, the $140 put calls are selling for $4. I’m also watching for the short of the century to set up here.

Q: Do you think CBOE Global Markets (CBOE) might be a good candidate for handling the new explosion of options volume?

A: Absolutely, I’ve been watching it for a long time, I just never got the time to research the company—only so many hours in the day.

Q: Is it time to go into Robinhood (HOOD)?

A: No, but the time may be getting close. Robinhood (HOOD), Coinbase (COIN), and MicroStrategy (MSTR) are all tied to the movement of Bitcoin, and when Bitcoin turns, all of these stocks will turn, and I will be into all of those big time. If you’re looking for cheap stuff to buy on the next explosive move up in the market, that is a big group. Housing is another big group. You just don’t want to be too soon in these things and get your head handed to you.

Q: Should I buy META (META) before earnings?

A: No. First of all, META has had a nice 24% pop in the stock—not a good entry point. Second, you never know how stocks are going to react to earnings these days. They could announce good earnings, the stock will sell off 10% anyway, or they could announce bad earnings and good guidance, and the stock will take off because the bad news is in the price. So, it’s too much of a random bet for me. I’d rather avoid earnings announcements. They have become completely unpredictable.

Q: The 10-year U.S. Treasury rate (TLT) — or U.S. bond rate—has been stuck at 4.25% for a while. Is a move to a 5.00% rate possible?

A: The answer is absolutely yes, not only possible but likely. The U.S. government has to borrow or refinance $11 trillion this year; that’s almost four times the previous record of $3 trillion set during the Pandemic in 2020, they’ve ever tried to tap. I don’t think the markets can take it—especially since many foreign investors have fled that market. So that also may be a cause of our next 20% correction in the stock market.

Q: My college student son is planning to buy his first stock; what should it be?

A: Well, since he is a college-age student, I recommend he buy Robinhood (HOOD) or Coinbase (COIN). These companies are aimed at that generation, and their stocks are cheap. So as soon as we get any kind of recovery in crypto, these stocks will take off, and he’ll get a good experience with the stock market. As for my kids, I put them into Nvidia (NVDA) when they started college four years ago at $10. They never ask for money. Maybe they don’t like me anymore?

Q: Is Tim Cook soon to retire?

A: I actually called Apple (AAPL) last week and asked them if the rumors were true. They said no, they don’t know anything about it, so I suspect somebody had a short-term put options trade they wanted to expire in the money, so they spread rumors, and the stock dove $6, then bounced right back. You see these kinds of fun and games in the options market all the time.

Q: As unemployment surges, will stocks benefit from lower labor costs?

A: Well, there are only about a dozen companies that are benefiting from lower costs as a result of AI; you know, Amazon, Apple, Google, and so on. The local pizza parlor is not benefiting at all from AI, nor is the baker, the candlestick maker, the barber—none of those people benefit, but they are all being hurt by higher costs. That’s about half of the economy. So, remember that tech is only 40% of the economy. The other 60% is suffering in this economy, except for the oil industry, which is only 3% of the economy now. Maybe it’s all the way up to 4% now. So, let’s just say that governments advertise their successes more than their failures. This is something I’ve been observing for the last 60 years.

Q: Is day trading a good idea?

A: Day trading is a terrible idea. Some 90% of the people who try it lose money, sometimes all of it. The 10% who do make money are heavily plugged into the meme scene—you know, following all the latest tweets, all the latest rumors. They bid up stocks like GameStop (GME), and now Silver (SLV), which has become the number one meme stock of the day. It’s an incredibly volatile business. So, you hear stories about people making money day trading, but very few of those stories actually pan out to real profits. It’s better to take a long-term view and index and take a one-year cruise around the world. Those are the people who make the most money. And when they get back, they take another cruise because they made so much money.

Q: What would I use for an exit on gold and silver?

A: Right now. If you made 400% on your money—and a lot of you have—don’t expect that to happen a second time.

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 15 years are there in all their glory.

Good Luck and Good Trading,

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

Strolling in Key West