December 10 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the December 10 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: Will the Fed cut or not today?

A: Well, it’s a 50-50 split now between Fed governors, so it really could go either way. The horrible jobs market certainly justifies an interest rate cut as we are in free fall, but the rising inflation rate doesn’t—go to a supermarket or take somebody out to dinner for Christmas and yikes, I’m getting hit with these $300 bills just for two people, so… yes, definitely inflation. Plus, they only have 5 things on the menu, service is terrible, and it’s a pale version of what it used to be, especially if you want to eat a steak. So we’ll see which way they go, but really now the betting is on the next Fed meeting, and even if they cut this meeting, they may not cut at the January 28 meeting. In six weeks, that is what the market will be focusing on: will they, won’t they? And of course, it all depends on the inflation data, which mysteriously, for reasons beyond my ken, won’t be released until a week after this Fed meeting. So the government is publishing as much unemployment data as they can get and keeping the inflation data secret. Why they have to do that, I have no idea. But that’s the world we live in today.

Q: I just bought Costco on the dip, which you’ve recommended in the past. At over $900, it looks like I should sell it. How low will it go, and will it be a buy?

A: Well, Costco (COST) is probably one of the worst affected companies by the tariffs, and therefore the biggest winner if the tariffs are ruled illegal by the Supreme Court, which they may or may not do. Some 31% of goods sold at Costco are imported, and 11% from China. It’s a total 50-50 coin toss at this stage. You don’t want to get caught ina falling knife situation which Costco os clearly in. I’m a short-term trader of options because playing implied volatilities, deltas hedging longs with shorts, you get an unfair advantage. Single stocks is a much more difficult game, because you have no hedge and no downside protection. For the short term, I have no idea. Looks like it’s approaching a major support level right here. So I’d be inclined to double my position. But that’s just me. You may have a different approach to risk. If it doesn’t rule, you could easily lose another 10% in the stock in a day, so it’s not a good time to make that bet just before the Supreme Court decision.

Q: What should we do about Netflix (NFLX) after the major sell-off with the Paramount bid?

A: This is one of the weirdest M&A situations I’ve ever seen, because Netflix met the final deadline of Friday last week for their bid of $82 billion, and then over the weekend, Paramount (PARA) came in with $20 billion more. I was an investment banker for 10 years. You can’t miss final deadlines in the M&A business. That is not done. The Netflix board met all the legal requirements of getting their bid in on time, With late bids, it’s kind of like betting on a horse after the race is over, you know, it’s just not allowed. And what this means is this extra bid isn’t about making money; it’s about control and power. Specifically, they’re after CBS, which Paramount would love to turn into another Fox News. The President already sued CBS multiple times, and the owners of Paramount are well-known large Trump donors, so this seems to be a purely political play. If the merger does go through, you can count on all prices to rise, the industry to consolidate, mass layoffs to occur, and service to get worse, as it does with all large mergers, as with everyone that’s happened for the last 50 years. That’s why mergers happen. That’s where the economies of scale kick in, is getting rid of the duplicate people. The other interesting thing which will affect you and me is that—of the bids coming from both Netflix and Paramount—roughly 60 to 80 billion of that was going to come from loans. And that adds to the “crowding out” issue in the bond market I have been talking about so much lately. Too many borrowers, not enough cash, interest rates are going up, and that’s what always happens when you overstimulate an economy, which is what’s happening now. We’ll see how this plays out. And I’ll be expecting a Netflix price increase shortly to cover the new annual $5 billion interest rate burden on $82 billion, which always accompanies these things, and will come out of your and our pockets. A confession: I have been a Netflix user ever since they used to mail you DVDs in large Christmas card envelopes back in the nineties.

Q: How do you see the Japanese bond market?

A: Well, the debt crisis that is happening here, and will accelerate next year, isn’t just a U.S. event. This is going on worldwide. There is massive borrowing going on in Europe to fund the Ukraine War, massive borrowing going on in Japan, and as a result, in long-term interest rates in Japan, their 10-year bond just hit 1.9%, which is a 17-year high. You remember that 10-year bonds in Japan were stuck at 20 basis points for about 20 years, and of course, you have a government there that has adopted an economic policy similar to what’s happened here, except they’re not deporting all the foreigners. And that is excess stimulus of the private sector leading to excess borrowing, overinvestment, and eventually a crash. Japan (NIKK) has had one of the best performing stock markets of the year and people are still pouring in but not with my money right here. I was paid well to ignore the Japanese stock market for 32 years. I’ll take that as a win. And I can always find better stocks in the U.S., which is the technology leader of the world.

Q: When will the recording of this webinar be available?

A: About 2 to 3 hours after the end of the webinar.

Q: Are Cameco (CCJ) and QUAD, a good buy now or no?

A: Well, they have doubled in a year, and you also have to watch the price of oil. I suspect these stocks have gone quiet because of the collapse of oil prices. When oil gets super cheap, all the other alternatives sell off too, so I would need more of a serious sell-off to believe that I’m getting a market in uranium after a double. We did make a ton of money on this a year ago, though, when we bought it at the lows literally weeks before the entire sector sold off.

Q: Will iShares 20+ Year Treasury Bond ETF (TLT) raise its yield today?

A: Probably. You know, the Fed has no control over the (TLT) except to the extent that they buy them in a quantitative easing program, which they just reinitiated. We just ended quantitative tightening. The Fed only controls the overnight rate. So no, it won’t have an effect, and in fact, we got zero movement in the (TLT) this year while the Fed did 3 interest rate cuts. So that shows you how unlinked the market is.

Q: Are you looking at JP Morgan (JPM) for a deep-in-the-money call spread?

A: I’d like to see one more drop if we get it. I want to wait until after the Fed decision before I do anything. But if I do, you will be the first to hear from me. It is one of the top financial stocks out there and dip buying has proved very profitable, literally since 2009. So yes, I’m a big fan of JP Morgan—I think Jamie Dimon is one of the best CEOs out there.

Q: How can I expect rates to go up when the Fed is cutting rates?

A: There’s a big difference between 10-year rates and overnight rates, that’s what we’re talking about, and we probably will get one or two more interest rate cuts next year. We may have to skip the January cut once the actual inflation data comes through, rather than having us just guess or go to Costco (COST) to see what things cost. So, in fact, you had this all year where the long rates have diverged sharply from the short rates. That probably will continue and get worse next year, so that explains how that’s going to happen.

Q: Will gold (GLD) and silver (SLV) continue to run up?

A: All of the main factors driving precious metals are still in place and will continue for the next year or two. You’re still getting Chinese people diverting their savings to gold because they don’t trust their own currency. You’re still getting flight to safety bids whenever you get big sell-offs in U.S. financial assets. And you had a complete collapse in the Bitcoin market where money poured out of all crypto sources. Some of the meme coins, I won’t mention them by name, have dropped by 99% since their issue in February, so I think a lot of the steam has gone into that market, and it’s gone into the precious metals market.

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 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