October 29 Biweekly Strategy Webinar Q&A

Below, please find subscribers’ Q&A for the October 29 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: What are the chances of Elon Musk leaving Tesla (TSLA) if he doesn’t get his $1 trillion pay package?

A: I think he’d settle for $500 billion, but knowing Elon Musk as I do, the $1 trillion is really just a PR announcement. There benchmarks he has to reach are so insane he will never meet them. There’s no way he’s ever going to get the $1 trillion. Of course, I did expect him to get the maximum pay package during the run-up in Tesla from 2010 to 2020 when it soared from $2.50 to $1,200 a share. This time, it’s a different kettle of fish — a much bigger company and much more impossible goals to reach that pay package, such as going to Mars. I think he’d settle for less, but $1 trillion makes a nice bragging figure, which is really all he cares about at this point.

Q: When will mortgage rates decline, and if so, will that breathe more life into the housing sector? I’m trying to buy a house.

A: Well, there’s a tug-of-war going on in the mortgage sector. On the one hand, the Fed is undeniably cutting interest rates, a quarter at a time. But the Fed only impacts the overnight market. The mortgage market is driven by 20- and 30-year bonds, and those have barely moved all year. We’ve gone from an $82 low to a $92 high in the (TLT) — a $10-point range on the year is incredibly small. And the problem is, in the long bond market, you have this huge overhang of $42 trillion in National Debt, and $10 trillion of that has to be financed next year. So that is a really big barrier to overcome in lowering mortgage interest rates.

If long rates do fall, for whatever reason, quantitative easing or massive money printing — then we will get a recovery in the housing market. If we don’t, then any recovery will definitely be short-term, as you see more and more homes financed with adjustable-rate mortgages, like I did in 1983, when the adjustable-rate mortgage was 18%. The rate eventually floated down to 11%, my home doubled, and I sold it.

Q: When do you think gold and silver will restart?

A: It could be any time. Certainly, the long-term trend for gold and silver is still intact. I’m still keeping with my $5,000 target, and a lot of people have ramped up their targets to $10,000. But we’ll talk about that more in-depth when we get to the precious metals section. Yes, everybody’s asking about gold and silver, it turns out, so they all must be long.

Q: Commodities sold off hard in the short term, and equities exploded higher. Is this only because of some trade deal with China, or is there something else I’m missing?

A: The real reason gold sold off is that it fell under its own weight. It had gone hyperbolic—too far, too fast. I was expecting a 10–20% correction at any time. I actually sold my own gold positions on the exact day it peaked, so I’m pretty happy with that. I’m looking to get back in, but again, I’ll show you when and where to do that in the precious metals section.

Q: Are we having a commodities boom across all critical minerals?

A: Yes. It’s being driven by AI and a massive buildout of the electricity grid. I’ve been pounding the table on this for years, and it will continue for maybe another decade. This is a major driver for all commodity stocks, and it’s not too late to buy.

Q: Will the iShares 20+ Year Treasury Bond ETF (TLT) go up after the Fed cuts rates?

A: I doubt it. If anything, it’ll sell off. It’ll be only a quarter-point rate cut, and if anything, you’ll get a “sell the news” reaction in the bond market, which has been rallying into the Fed rate cut. Don’t forget the overhang of $42 trillion in national debt, with $10 trillion in refinancings and new issuance next year. That’s all the bond traders see.

Q: What is your view on solar stocks?

A: They’ve lost all of their subsidies but have been rallying hard. If you look at the Invesco Solar ETF (TAN), it’s had a tremendous rally, doubling since April, —not something I would have expected, given that they’ve been living off subsidies for 15 years and those are all gone now. However, the demand for electricity is so great that it’s spilling over into the alternative energy area as well. Just to give you an idea of how great the demand is: one data center uses 1 gigawatt of power, enough to power 750,000 houses. And we need at least another 1,000 data centers, which is roughly a thousand gigawatts, or one terawatt. So there’s your commodity argument, there’s your alternative energy argument, and your oil industry argument. This is why they’re all moving up at the same time.

Q: Bitcoin is off from the $105,000 low. Can it rally back up to $115,000?

A: Well, Bitcoin really has gone nowhere for eight months, and the reason is that all the money has been going into gold. The fact that Bitcoin hasn’t rallied on the gold sell-off means there is another leg up in the gold market is coming, which I plan to catch. In any case, Bitcoin is getting overwhelmed by derivative issuance, which is always what happens on Wall Street. For every one Bitcoin that’s being mined, there are probably a hundred derivatives being issued. When the selling gets going, those derivatives are going to come back to haunt you. It’s a tail wagging the dog situation. With high-quality techs basically going straight up, most investors ask, why bother with Bitcoin? That’s the attitude these days, unless you’re a Bitcoin issuer.

Q: How many more Fed interest rate cuts do you think we’ll get?

A: I think this one’s in the bag. We may get another one in December. After that, it depends on the inflation rate. As long as the current Fed governor, Jay Powell, is in place until May, he’s going to watch the inflation rate. The one who comes in after that, whoever it is, could care less about inflation and will likely adopt highly inflationary policies, cutting interest rates no matter what the inflation rate is. That’s one of the reasons all the markets are going up—they’re looking for the hyper-liquidity boom starting next year.

Q: Oil ($WTIC) keeps trending lower, to $50 a barrel. When will we see a big increase in the price?

A: When we get an actual global economic recovery. Right now, growth worldwide is slowing because of the trade war, and that is cutting oil demand, plain and simple. End the trade war, and the oil market will recover as the world economy recovers. That could be a long wait, by the way. We may continue to bounce along the bottom with low growth for the foreseeable future, with only liquidity driving asset prices up. That is what’s happening right now: News just came across that Saudi Arabia is accepting Chinese yuan for oil payment—is this new?
A: No, it’s not. In fact, the Saudis have been trying to arrange bilateral currency deals like this for decades, trying to get away from the U.S. dollar, on which they are overly dependent. It’s old news, and I don’t expect it to impact anything.

Q: Why did the U.S. buy beef from Argentina and collapse the U.S. beef market?

A: I have no idea what the thought process was on that one—probably none. It’s probably political, which means it’s beyond my pay grade—sorry, can’t help you there. All I can tell you is that beef prices at the three-star restaurant level are at all-time highs. A lot of premier restaurants are now charging $100 a steak, like Ruth’s Chris Steakhouse.

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, 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

1968 in Venice