August 27 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the August 27 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: How long will it take the bull market to continue?

A: I would say it depends entirely on inflation. If inflation continues to accelerate, interest rates will go up at the long end, which is what’s happening now, and that will kill off the economy. If that happens, we’ll get a recession in a year, and a bear market—which is a decline of 20% or more—maybe in 3 years. Who knows? Right now, uncertainty is the name of the game. No one’s willing to make any big bets, one way or the other, and 90-day T-bills yielding a risk-free 4.3% are looking pretty good.

Q: Boeing (BA) has had a big run. Is it too late to get involved?

A: I would say yes, you know, the new management seems to be delivering the goods, the federal government has dropped all of its criminal penalties and fines against the company, and China (FXI) started taking delivery of new airplanes again. These are all positives, and as a result, Boeing deliveries are at 4-year highs. So we could get back to the old high of $450 a share, almost a double from here, which we were at about 5 years ago. It’s also hostage to the trade war. China will start and stop acceptances of Boeing jets, depending on how they’re faring in the trade war, so that is an unknown. China does seem to keep getting permanent 90-day extensions on their tariffs. In the meantime, we’re hitting India with a 50% tariff, where Apple just shifted all its production. So, you know, a lot of unknowns these days.

Q: What’s the best ETF I can buy out there?

A: Probably the Vanguard S&P 500 ETF is the cheapest. I think their fees are less than 10 basis points, maybe.1%, I haven’t looked at it in a while because I am not really an index guy. If you want to be aggressive, you can put half your money into the SPDR S&P 500 ETF Trust (SPY) and half into the Invesco QQQ Trust (QQQ) to give you a big technology/AI exposure, and a lot of people are doing that. You know, a lot of people can do okay just indexing like that. Not very many people actually beat the indexes by single stock picking. Of course, that’s what I do all day long. You know, the market’s up maybe 8% this year, and we’re up 54%. That is purely because of my sector and stock picking.

Q: I received your long-term portfolio update last week and always love the rationale and the sector stock breakout guidelines. Lots of changes since the last one; however, lots of gains. Is it worth selling the gains and paying the taxes in exchange higher highs in the new stocks?

A: The answer is yes. It is never worth allowing taxes to determine your investment strategy. It’s better to pay a 20% capital gains tax to capture the next 100% gain in the right stocks, or 200% gain. Also, depending on your personal situation if you have any previous losses this year, like short-term losses. Those can be offset with gains, and a lot of people will plan their taxes accordingly, realizing losses, some of which were incurred many years ago, and using those losses to offset money they’re making now. And I often see that because people lose money with other newsletters, and have lots of accumulated losses, which, by the way, carry forward for 20 years, and they start burning through all those lost carryforwards as soon as they sign up for my service. That has been the 18-year history of this letter.

Q: Do you see any potential renewable power stocks on the horizon besides geothermal? With the current political landscape, does it change your Roaring 20s thesis about green energy?

A: It does, absolutely. Green energy has the kiss of death on it right now. Just yesterday, the administration canceled a gigantic wind farm in New England that was already paid for and 95% completed. I think it was a $4 billion 908-megawatt project. This will inevitably lead to brownouts in New England as AI sucks up all the power because this electricity was supposed to power 400,000 homes. So if they’re willing to sacrifice that alternative source at any cost, you can forget about any kind of green anything—possibly for four years, until there’s a new administration. The good news for me is that I invested a quarter of a million dollars in a solar system and got the 30% federal subsidy. That system is now worth a lot more because it’s I can to have a zero electricity bill for the next 20 years, so while the price is rising 10% a year, it works for me. And all of the companies who built my project are begging for me to expand it because their other business has dropped to zero. So I think we can forget about alternative energy, except for nuclear. And by the way, we’ve been recommending nuclear stocks for the past year, like Cameco (CCJ) and Vistra Energy (VSTR), and they have all doubled.

Q: Will the launch of self-driving cars like those from (TSLA) destroy insurance stocks?

A: Absolutely, yes, it will. It will cut driving deaths in the United States from 35,000 a year to near zero. You also have no more drunk driving convictions if the car is driving. I’m already getting Tesla insurance, and it is 90% cheaper than my old insurance, because Tesla knows exactly how I drive. If I get caught speeding one month, my insurance rate goes up to $200 a month when I am in Europe or South America, for a car that costs $165,000. If I leave it parked in the garage for a month, it drops down to $126 a month. That is incredible. Of course, I’ve never tried to claim anything, so that may be when we really find out the cost of this insurance.

Q: Are the tariffs on every country making the U.S. economy great and products cheaper for the consumer?

A: No! It’s making the U.S. economy weak. Prices for consumers are going up just as their wages are going down. So, it’s the exact opposite of what the questioner was asking about. That’s why the economic policy of this government makes no sense to me whatsoever. However, it may take two or three years before the real damage becomes evident and the markets figure that out. That’s when you get your 50% sell-off in the stock market. But it’s going to go up first, and that’s all we care about now—just the short term. Living life from one option expiration to the next. So we’re going to keep on doing that until the game changes.

Q: I don’t answer political questions, but someone here has pointed out that I’m negative about the administration.

A: I’m just a numbers guy. A year ago, the economy was growing at 3%. Now it’s growing at 1%. Period, end of story. The U.S. currency has dropped 15% against the Euro, and more against other currencies. So I’m just looking at the numbers. Sure, the stock market is going up. That’s happening because the companies have gotten the biggest subsidy in U.S. history—$1.2 trillion—by expensing capital investments in the first year. If you’re in the stock market and your stocks are going up, that’s great, and I’m one of those people. But half the country doesn’t own any stocks, and they’re doing less than great. Again, it takes a long time for these major structural changes to be evident. My bet is that they’re all going to fail. But in the meantime, I’m going to make as much money as I can in the stock market.

Q: I can’t understand why you would cancel a wind farm project when it’s 95% done and already paid for.

A: They didn’t ask me. I would have finished it. It would have supplied power for 400,000 houses. I have a feeling it will get finished after appropriate donations are made and negotiations had. But right now, people are freaking out in New England because they’ve just lost their number one new power supply for the next 20 years.

Q: Which stocks benefit the most if the Fed cuts interest rates?

A: Anything interest rate sensitive. I’ve been hammering away on those for months now. We put out a LEAP on D.R. Horton (DHI), which has already made about 50% of its profit. All the home builders (LEN), (PHM), (KBH), real estate (RKT), financials (JPM), (BAC), (GS), (MS), REITs (CCI)—anything except bonds, by the way. Long-term bonds (TLT) may not participate in this interest rate rally because of the coming debt crisis. That is how bond investors perceive things. They’re just no longer willing to lend money to anybody for 30 years. The future is so uncertain with the national debt growing at 15% a year. Those are the best stocks to buy, and they’re just getting started. It’s not too late to buy any of these things. And as I pointed out earlier, all the bank stocks are about to have a major upside breakout. Gold, by the way, is another great interest rate play because it gets less interest rate competition from T-bills. So that’s always classically been a reason to buy gold, and guess what’s been happening here? Waiting for the Fed to cut interest rates. What happens when they cut interest rates? $5,000 an ounce, here we come. Very simple trade here.

Q: Do you recommend Bitcoin (MSTR) or gold (GLD)?

A: As a long-term investment, I’ll pick gold all day long. Gold has a shrinking supply, and while Bitcoin also has a shrinking supply, Bitcoin derivatives are absolutely exploding. I expect another 95% decline in Bitcoin prices in the future because of the overissuance of derivatives being issued at about 100 to 1 compared to the underlying Bitcoin. When the price starts to go down, this thing will just vaporize.

In the meantime, it’s one of the best trading instruments out there. MicroStrategy (MSTR) had an implied volatility of 100% at the highs; it’s now down to about 50%. Most of the rest of the market is in the 20%’s, and the S&P 500 (SPX) is at about 14% right now in implied volatility. So it’s a great trading vehicle. Buy the dip, sell the rallies, just price trade it like most people do with most stocks.

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, 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

 

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