February 11 Biweekly Strategy Webinar Q&A

Trader Global Strategy Webinar, broadcast from 65 degrees South in Antarctica.

Q: I’m concerned about pressure on software standalones in the face of AI domination; are these stocks a buy, or when will we see the bottom? Are they going out of business?

A: Some will and some won’t, such is the nature of technology investing. But you probably should start picking up Microsoft (MSFT) pretty soon because this is an environment where only the strongest survive. Microsoft is one of the strongest companies in the world. They had huge cash balances, which they were spending on AI, and they will be a major AI competitor, so I would vote for Microsoft among the software stocks. If someone’s holding a gun at your head demanding that you own something in the software sector, the other safe software stocks are going to be the cybersecurity ones, which are also getting hammered. And that is Palo Alto Networks (PANW) and Snowflake (SNOW), and so on. So those will always come back.

Q: Where is the bottom for Bitcoin?

A: I think eventually the bottom for Bitcoin is zero, but we may have to have a big rally first—like a 25% rally—before we go down and establish new lows. Some of the big whales are bailing on 10 to 15-year positions, saying the game is over, the hype is gone. At the end of the day, when you run out of buyers, this is the asset class that goes down. Comparisons with gold were ludicrous six months ago; gold won out big time, and gold probably has a lot further to go. So I think eventually we do get to zero, but it’s begging for a short-covering rally right now. I’ve been watching Bitcoin trade every day for months, and it’s obvious that every single rally is just getting mercilessly slammed. So it’s not a long play for the moment. We still have big risks for the market. And the risk is that all the good news is in the market: the tax cuts, the dovish Fed, falling interest rates, massive government spending financed by record borrowing, AI improvements, and the profits. What we don’t know are the next dozen surprises, so the net-net of this is a market that is going nowhere, has no inspiration to do anything, and is waiting for the next direction, be it good or bad. So, I’m keeping positions at zero in these conditions, waiting for better entry points.

Q: What can you say about the SpaceX IPO?

A: It will be engineered to create structural shortages, which means they’ll probably only float 5% of the shares to get the original venture capital investors like Ron Baron out. And that’ll create an artificial shortage in the market, which will lead to a 300% up day on the first day, and then it’ll sell off from there. That has been the pattern of all new IPOs recently: artificially engineered shortages leading to artificially engineered highs to get the founders out. I would not touch this issue with a 10-foot pole. Better to wait for the 50% sell-off before you entertain a long position in SpaceX. That’s what I did with the original Tesla issue in 2010. And it’s said to happen on Elon Musk’s birthday. We know somebody else who likes doing stuff on birthdays. So we shall wait and see. It will be entertaining, to say the least. I was recommending this when it was only a billion-dollar company to VC investors I know. It will probably come out at a $600 billion market cap. By the way, I did get a personal invitation from Elon Musk to visit one of the early SpaceX Falcon 9 launches, and that was quite the experience. I took my kids, and we had lunch at the taco truck right before launch.

Q: Is Coca-Cola (KO) a buy down here, or is the trend to a low-calorie America here to stay?

A: I would say it continues. And even Coca-Cola itself is trying to readjust its product range to lower-fat, lower salt, and lower-calorie alternatives. Believe it or not, (KO)’s number two selling brand out of hundreds is Diet Coke. That is hard to believe, but that is what the public demands. You have roughly 100 million people in the United States on weight reduction drugs, which absolutely kills your appetite. So, I think this is a long-term trend that will eventually lead to a healthier and less expensive America. Fewer fat people mean fewer medical claims down the road.

Q: What is the stock market telling us about the K-shaped economy?

A: It means that the concentration of wealth at the top is accelerating. It means that half of America has no savings whatsoever, which is getting progressively worse. You have about 10% of America owning more than 50% of all the stocks, and that is accelerating. The last time that happened was in the run-up to the French Revolution in 1789, where the crowds rose up and said, “off with their heads.” So…this will not end well. However, we could have a market that keeps rising for years until it does. Eventually, this does end in a stock market crash of 50% or more. It’s anybody’s guess when that actually happens. So, these are my dire predictions for the future.

Q: Do you believe the rumors that JP Morgan (JPM) traders were the catalyst for silver and gold diving last week?

A: Definitely something was broken in the market. Long-term buyers of silver in the industry were buying silver for physical delivery, as they have done forever, and not getting it. There were not enough gold or silver bars to deliver for industrial purposes, so that suggests something was severely broken in a market, creating these massive short squeezes that happened and then literally unwound in a day. So those market historians like me who’ve been tracking precious metals for 50 years saw this coming, but had no idea it would go as far as it did. That’s why I bailed on all my gold and silver positions days before this happened, and then on my long-term positions back in November and December.

Q: I hear that The Commodity Exchange (COMEX) has hundreds of millions of dollars’ worth of gold and silver in its vaults.

A: That is true, because they need physical gold and silver to back up the contracts in the futures market. I know this because they used to be held in the basements of the World Trade Center, and when the World Trade Center collapsed, that gold and silver was buried for many months until they finally dug it out. This was all kept secret at the time because they didn’t want freelancers going there digging the gold and silver out, but they still have it. I don’t know where it’s being stored; it’s not something that I like to advertise, but all of the gold and silver futures contracts in the marketplace are actually backed by physical silver. Whether it’s one-to-one, I don’t know, but that is a true rumor that you’re asking about.

Q: Why do currencies keep getting stronger?

A: Well, that is very easy, and I’ve been hammering away at this for the last year. It’s part of the “Sell America” trade as foreigners bail on all U.S. assets. You sell U.S. assets, that means selling dollars. China has not bought any U.S. bonds for five years. Japan is slowly unwinding its Treasury holdings, and no one seems to want to touch America right now. I can’t imagine what the reason is, but that is what the financial markets are believing. Imminent falling U.S. interest rates are usually the controlling factor in the foreign currency markets and has to be a major part of the reason, and that looks set to continue for the rest of this year. Look for weaker currencies. Any rallies in the dollar should be sold. It’s almost become a Bitcoin of its own. Buy (FXE), (FXA), (FXB), and (FXC) on dips.

Q: Has Tesla (TSLA) peaked?

A: Yes, until they can show up with a robot that makes money. That’s five or ten years off. Don’t hold your breath. I’d be selling rallies here, but probably also buying the bigger dips, because Tesla always seems to come back. But it isn’t going to be led by EVs anytime soon, which is still suffering a nuclear winter.

Q: Do you like Palo Alto Networks (PANW) over Palantir (PLTR)?

A: Yes. Palantir is more overextended as a tech stock. Palo Alto Networks is much cheaper and is a more pure cybersecurity play, so that’s an easy one.

Q: Will Eli Lilly (LLY) continue to go up?

A: Yes, the demand for its weight loss drugs is enormous, as are its customers—enormous. They have other drugs in the pipeline that will reinforce the profit trend. They’re getting new delivery systems like pills, so you don’t have to shoot yourself in the leg. It’s overall a very great company to start with.

Q: Will the market hit the Trump target of Dow 100,000?

A: The answer is yes, someday, but not while Trump is around. There might be a zero return for stocks for the entire four years of the Trump administration. I expect poor performance for stocks for the next couple of years. The next big monster rally will probably happen under a new future president, whoever that is.

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