September 17 Biweekly Strategy Webinar Q&A

Below, please find subscribers’ Q&A for the September 17 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: Is it possible for the federal government to change quarterly earnings reports to semiannual, and what would that do to the stock market?

A: This isn’t going to happen because it would suck profits out of the stock market. If there’s less reporting, there’s less to trade on. That would reduce market volumes, reduce market volatility, or at least confine it to two days a year instead of four. So you can bet Wall Street’s going to fight this like crazy. More disclosure brings in more investors, and you can bet a lot of investors will ban investment in companies that report earnings only twice a year or not at all. The quarterly reporting requirement is only 55 years old. It goes back to the 1960s. Back in the 19th century, companies never reported, and you had an economy that constantly went bankrupt, had constant financial crises, because companies would look great one day and go bust the next. Only the insiders made money at that time, which was legal back in those days. So I tend to think that’s not going to happen. The long-term trend is for more disclosure, not less.

Q: What is your opinion of the German economy, and how do I buy European stocks?

A: The DAX index has an ETF (DAX), which you can buy. After running no deficits really for 50 years, the German economy has suddenly started borrowing big and spending big, and that is great for the stock market. That is why foreign money has been pouring in. The other reason is that their stock market was cheap, being ignored for 20–25 years, where ours was expensive. So there was a natural rotation begging to happen, and the February stock market crash was all people needed to hear. So yes, I like the German stock market here. If you want to pick a single company, you can buy Metal Gesellschaft, which is their main heavy weapons and steelmaker.

Q: Is the AI bull market over?

A: Goldman Sachs (GS) is asking the question for sure, saying that stock prices may flatten out here or even decline. Oracle soars by 23% on spectacular cloud growth forecast, making Larry Ellison the richest man in the world for a few minutes. Robinhood (HOOD) joins the S&P 500. That’s a great millennial play and volume play, and their entry was delayed because of their close association with crypto, which many regulators view as an invitation to trouble. Health and Human Services bad mouthed Tylenol, tanking the stock, and can view a Johnson and Johnson spin-off. You can expect this to happen more or less every day, with the Health and Human Services attacking some part of the medical establishment, and that’s going to continue for four years, and it’s looking like some childhood vaccines will get banned. Expect more diseases, more people losing their children as a result.

Q: What is the outlook for the Treasury market (TLT) with massive Fed borrowing about to hit?

A: Reliable sources tell me that $6 trillion is due for rollover next year, ironically, money that Trump borrowed during his last administration, and that has to be refinanced at much higher interest rates. You go from 3% to 5% on top of the $5 trillion that got borrowed as a result of the new budget bill this year, so you really could get a massive crowding out of private borrowers and higher interest rates at the long end, and a serious bond market crash. That has been happening with the steepening of the yield curve, where the Fed could lower short-term rates as much as they want, but the market is in control of long-term rates, and if there are no buyers, long-term rates go up. That is one thing that has the bond market thinking that the end of the world is at hand. You talk to bond traders, and they think conditions are terrible.

Q: Will the large pharmaceutical companies like Pfizer (PFE) be down for the next four years?

A: My bet is three years or even two and a half, because a year before the election, all of the industries that suffered from the current administration, like pharmaceuticals, should start to rally as people take advantage of cheap prices.

Q: Do you like copper companies like Freeport McMoran (FCX)?

A: I absolutely love Freeport McMoran. I loved it enough to go visit a copper mine a couple of months ago to get a firsthand look at the industry. We are on the verge of a copper boom due to the fact that the US grid has to triple in size just to accommodate current AI demand. So buy copper, buy gold, buy silver. All the hard assets are doing really well, and by the way, they’re also weak dollar plays, another reason to buy all the hard assets.

Q: With the Fed cutting rates, does this guarantee we are in for a higher S&P (SPY) by the end of the year?

A: I think we are, especially if they do a continuous rate-easing cycle that will keep sucking in the buyers. Don’t fight the Fed. But at some point, the markets will get overbought, and they have to sell off. That is what we are trading against: a known top in the market. We just don’t know when it is. Certainly, on valuation measures, we’re already at the top, but nobody’s looking at valuations anymore, just liquidity. Liquidity is at record highs, with the government pumping a record $5 trillion into the stock market through all of their various tax subsidies.

Q: Is gold (GLD) overbought at this point, or do we go higher?

A: We go a lot higher in gold because interest rate cuts in the US translate immediately into higher gold, silver, and copper prices. We only will just start interest rate cuts today. Maybe if the Fed doesn’t cut any more, you can expect stocks to sell off five or 10%. So yes, I’m looking for $5,000 an ounce for gold, but forecasts of $10,000, $20,000, and $50,000 are out there, just like there are forecasts for Bitcoin of a $1 million by the largest holders. Pick a number and multiply by 10, and that’s your upside target.

Q: What is the end game with unemployment, and if the worst-case scenario of AI taking all jobs happens, how will the stock market go up if nobody has a job?

A: Mostly, the AI job losses are affecting only entry-level people who can’t get jobs at all, or the lower-level people in companies, and those people are being replaced by other people from India. If you look at the author of your recent research piece, it often will have a name from India. Virtually all publications are moving their actual writing to India, where they get AI apps to actually write the stories. They just put in a few keywords, and a story pops out. Much of what you’re reading now is probably written by AI. But you can count on the unemployment rate rising every month, probably for another year or more, and at some point that will affect the economy and the stock market. It’s hard to see stocks go up with a 6 or 7% unemployment rate and a shrinking economy, although that’s what’s happening all year. Liquidity conquers all.

Q: Will Bitcoin (BITO) rise with lower interest rates, and if so, by how much?

A: Bitcoin will rise because it has less yield competition from dollar instruments. Bitcoin yields zero. So yes, I think we go back to the old high. That’s a natural target for the trend followers. There may be a nice 10% move here in Bitcoin and a 30% or 40% rise in (MSTR), where we put out a long yesterday, a long call spread.

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