January 14 Biweekly Strategy Webinar Q&A

Below, please find subscribers’ Q&A for the January 14 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Sarasota, FL.

Q: How will the Supreme Court rule on the tariffs?

A: Well, the fact that they’ve delayed this decision for so long means they’re having a hard time ruling. The actual fact is that the White House-imposed tariffs are illegal. Only Congress has the ability to raise revenues. The president does have other emergency powers to impose tariffs, like in cases of dumping, but those require two-year hearings, and that doesn’t seem to fit in the Trump world. That’s why the markets have gone flat to down. With no Supreme Court ruling, we’re not going to get any real market action until we do. The initial move will probably be down in the markets, and you probably want to buy that dip, because the long-term bullish drivers are still there. If the Supreme Court rules against the administration, expect Costco (CSCO) to rocket.

Q: You frequently mentioned that investors should not hold physical gold and silver bars with third-party custodians. Can you elaborate why?

A: There are a lot of small private vaults out there offering to store your gold bars for a fee. These are undercapitalized, unregulated, and unlicensed, and can go bankrupt. That ties your gold up in 3-10 years of litigation. I saw this happen several times during the last gold boom. It can get stolen by the vault owners. I know people who bury their gold under concrete walls or floors or keep them in safes at home. But what happens if the house burns down? Gold melts at 1,948 degrees Fahrenheit while wildfires top 3,000 F. I keep my gold and platinum coins in a safe deposit box in a large national bank. This doesn’t work for silver because the volume of bars is so great that they wouldn’t fit in the largest box. There is also the transaction costs with physical gold and silver, which can run 10%. The commission on (GLD) is almost zero, making to cheap and easy to do a quick in and out. You can also use (GLD) options to hedge your positions.

Q: I’m planning a European vacation—should I pay now or later?

A: Pay now. If you wait until the summer, your European vacation may get 10% more expensive. If you have any way to do it, buy foreign currency cash so you can pay for your meals with the cheaper currency. That’s what I do when I’m expecting a currency collapse here in the U.S., and we’ve had many.

Q: Is there any trend that’s predictable in the Treasury market?

A: The fact that we had three interest rate cuts in the market last year and Treasuries did not move at all—they were unchanged, which is kind of unprecedented and predicts a lower Treasury market. We may hit 4.50% or even 5% in yields before we hit a bottom, unless the deficit really takes off like a rocket, which it could well do. Unfortunately, bonds are a no-touch this year. Maybe if we get a capitulation sell-off, I’ll take a look at it, but we did no bond trades last year, and I expect I’ll do none this year as well.

Q: Tomorrow, we get a decision as to whether MicroStrategy (MSTR) will be removed from the Morgan Stanley CAP International Index. Will this affect the market?

A: It will, because it removes index buyers for Strategy (MSTR), and that was a big part of their support. But (MSTR) is having a great day today on the possibility of another crypto bill passing Congress, and I kind of wish I bought the call spreads. I missed it, so we’ll just have to watch it for now.

Q: Should I buy U.S. Dollars (UUP) to invest in the U.S. Market?

A: Yes, you can only invest in the U.S. market if you buy U.S. dollars, but you should hedge those purchases by buying Australian dollars to offset your dollar risk. There is an ETF you can do that with, the Currency Shares Australian Dollar Trust (FXA). What you essentially do when you do that is convert American stocks to Australian dollar-denominated stocks. Not such a bad idea, and maybe some Americans should be considering that too. Of course, the recovery of the Chinese economy has had a big factor in causing the Australian dollar to go up, and we’ll see that in the charts when we get to the currency section.

Q: Why was JP Morgan (JPM) hit so hard?

A: Partly, it’s a response to the Trump administration proposal to cap credit cards at 10%, but also, there’s a sell-on-the-news move across all financial earnings. It’s probably a good place to get back in right here

Q: How likely is the attack on Iran and Greenland, and what will be the broader implications on the market?

A: The market has always ignored geopolitical crises. If you get a sell-off on a geopolitical crisis, it will be short-term, and it will create a buying opportunity. It’s likely that 95% of Americans couldn’t point these two countries out on a globe, so it’s unlikely they will affect their investment decisions. Americans are notorious for their ignorance of international affairs. I don’t think anything in Greenland is going to happen. The US already has a huge Air Force base there at Thule. Iran is the low-hanging fruit because the Israelis have already wiped out their air defense system, so it’s easy to stand off 1,000 miles, shoot some cruise missiles in there, and damage their oil infrastructure. By the way, we’ve attacked six countries in nine months since Trump became president, and more are coming. You just never know. In fact, there’s a war trade that has developed where people buy gold and Bitcoin on Fridays, expecting an attack against someone over the weekend. Then you sell out on Monday. I actually did that on the Venezuela trade in Bitcoin in my own personal account and made some decent money.

Q: Will Bitcoin or other crypto become a common payment system?

A: There already is an alternative payment system. Unfortunately, in the early days of Bitcoin (BTC), which I was involved in, the payments were used mostly by kidnappers and drug dealers. It has since gotten more respectable, with the big American banks getting in, but it has kind of lost its shine with a 35% sell-off. It was supposed to be a place to preserve your assets instead of consuming them, and that’s what ended up happening. You had two million Bitcoin trading accounts get wiped out in October because of margin calls after the initial big declines. This is the problem with Bitcoin: While the amount of Bitcoin issuance drops by half every four years, there is no limit on Bitcoin derivatives, which probably outnumber the underlying Bitcoin by 1,000 to 1. When the selling starts in the derivatives, it takes the Bitcoin underlying these derivatives down as well. When someone solves that problem, I might get interested in Bitcoin.

Q: Is SoFi (SOFI) a good investment?

A: Yes, it is, and Robinhood (HOOD) is another one just like that. It’s the broker to the Millennials and the fastest-growing section of the market. Millennials tend to trade like crazy, as opposed to baby boomers who buy and hold, so the growth outlook for SoFi is outstanding, and I would recommend the stock on any decent pullback.

Q: Will insurance companies accept Bitcoin for premium payments?

A: Not yet, because it’s a very heavily regulated industry, but I imagine they might sometime in the future, so watch this space. However, the recent 35% sell-off has cooled the interest of everyone in the Bitcoin area. That’s where we are.

Q: Why isn’t cheap gasoline having a bigger effect on the economy?

A: The answer is that U.S. energy use per unit of GDP has been falling for 25 years. As cars become more efficient, energy use becomes more efficient. Twenty-five years ago, you were getting around 15 miles per gallon; now with hybrids, you’re getting 50. About 10% of the U.S. car fleet is now all-electric, so they’re not using gasoline at all. This trend will continue. Decades of generous tax subsidies for the energy industry have led to structural overproduction. You can see this in the stock market as well. Twenty-five years ago, energy companies were about 15% of the total market cap. Now they’re about 3%. The energy industry is slowly disappearing and being replaced by alternatives, and nuclear will be a big part of that.

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